See accompanying notes to the unaudited condensed consolidated financial statements.
See accompanying notes to the unaudited condensed consolidated financial statements.
NOBLE CORPORATION AND SUBSIDIARIES
NOBLE CORPORATIONFINANCE COMPANY AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unless otherwise indicated, dollar and share amounts in tables are in thousands, except per share data)
Note 1— Organization and Basis of Presentation
Noble Corporation, plc, a public limitedan exempted company incorporated underin the laws of England and WalesCayman Islands with limited liability, collectively with its consolidated subsidiaries (“Noble-UK”Noble” or “Successor”), is a leading offshore drilling contractor for the oil and gas industry. We performprovide contract drilling services to the international oil and gas industry with our global fleet of mobile offshore drilling units. Noble and its predecessors have been engaged in the contract drilling of oil and gas wells since 1921. As of SeptemberJune 30, 2017,2021, our fleet of 24 drilling rigs consisted of 14 jackups, eight drillships12 floaters and six semisubmersibles.12 jackups.
We report our contract drilling operations as a single reportable segment, Contract Drilling Services, which reflects how we manage our business. The mobile offshore drilling units comprising our offshore rig fleet operate in a global market for contract drilling services and are often redeployed to different regions due to changing demands of our customers, which consist primarily of large, integrated, independent and government-owned or controlled oil and gas companies throughout the world.
On July 31, 2020 (the “Petition Date”), our former parent company, Noble Holding Corporation plc (formerly known as Noble Corporation plc), a public limited company incorporated under the laws of England and Wales (“Legacy Noble” or the “Predecessor”), and certain of its subsidiaries, including Noble Finance Company (formerly known as Noble Corporation), a Cayman Islands company (“Noble-Cayman”Finco”), isfiled voluntary petitions in the United States Bankruptcy Court for the Southern District of Texas (the “Bankruptcy Court”) seeking relief under chapter 11 of title 11 of the United States Code (the “Bankruptcy Code”). On September 4, 2020, the Debtors (as defined herein) filed with the Bankruptcy Court the Joint Plan of Reorganization of Noble Corporation plc and its Debtor Affiliates, which was subsequently amended on October 8, 2020 and October 13, 2020 and modified on November 18, 2020 (as amended, modified or supplemented, the “Plan”), and the related disclosure statement. On September 24, 2020, 6 additional subsidiaries of Legacy Noble (together with Legacy Noble and its subsidiaries that filed on the Petition Date, as the context requires, the “Debtors”) filed voluntary petitions in the Bankruptcy Court. The chapter 11 proceedings were jointly administered under the caption Noble Corporation plc, et al. (Case No. 20-33826) (the “Chapter 11 Cases”). On November 20, 2020, the Bankruptcy Court entered an order confirming the Plan. In connection with the Chapter 11 Cases and the Plan, on and prior to the Effective Date (as defined herein), Legacy Noble and certain of its subsidiaries effectuated certain restructuring transactions pursuant to which Legacy Noble formed Noble as an indirect wholly-owned subsidiary of Noble-UK, our publicly-tradedLegacy Noble and transferred to Noble substantially all of the subsidiaries and other assets of Legacy Noble. On February 5, 2021 (the “Effective Date”), the Plan became effective in accordance with its terms, the Debtors emerged from the Chapter 11 Cases and Noble became the new parent company. Noble-UK’sIn accordance with the Plan, Legacy Noble and its remaining subsidiary will in due course be wound down and dissolved in accordance with applicable law. The Bankruptcy Court closed the Chapter 11 Cases with respect to all Debtors other than Legacy Noble, pending its wind down.
Noble is the successor issuer to Legacy Noble for purposes of and pursuant to Rule 15d-5 of the Exchange Act. References to the “Company,” “we,” “us” or “our” in this Quarterly Report are to Noble, together with its consolidated subsidiaries, when referring to periods following the Effective Date, and to Legacy Noble, together with its consolidated subsidiaries, when referring to periods prior to and including the Effective Date.
Upon emergence, the Company applied fresh start accounting in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 852 – Reorganizations (“ASC 852”). The application of fresh start accounting resulted in a new basis of accounting and the Company becoming a new entity for financial reporting purposes. Accordingly, our financial statements and notes after the Effective Date are not comparable to our financial statements and notes on and prior to that date. See “Note 3— Reorganization and Fresh Start Accounting” for additional information.
Finco was an indirect, wholly-owned subsidiary of Legacy Noble prior to the Effective Date and has been a direct, wholly-owned subsidiary of Noble since the Effective Date. Noble’s principal asset is all of the shares of Noble-Cayman. Noble-CaymanFinco. Finco has no public equity outstanding. The condensed consolidated financial statements of Noble-UKNoble include the accounts of Noble-Cayman,Finco, and Noble-UKNoble conducts substantially all of its business through Noble-CaymanFinco and its subsidiaries. As such, the terms “Predecessor” and “Successor” also refers to Finco, as the context requires.
NOBLE CORPORATION AND SUBSIDIARIES
NOBLE FINANCE COMPANY AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unless otherwise indicated, dollar and share amounts in tables are in thousands, except per share data)
The accompanying unaudited condensed consolidated financial statements of Noble-UKNoble and Noble-CaymanFinco have been prepared pursuant to the rules and regulations of the U.S.US Securities and Exchange Commission (“SEC”) as they pertain to Quarterly Reports on Form 10-Q. Accordingly, certain information and disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) have been condensed or omitted pursuant to such rules and regulations. The unaudited financial statements are prepared on a going concern basis and reflect all adjustments whichthat are, in the opinion of management, necessary for a fair statement of the financial position and results of operations for the interim periods, on a basis consistent with the annual audited condensed consolidated financial statements. All such adjustments are of a recurring nature. The December 31, 20162020 Condensed Consolidated Balance Sheets presented herein are derived from the December 31, 20162020 audited consolidated financial statements, and as a result, they do not include all disclosures required by GAAP.statements. These interim financial statements should be read in conjunction with the consolidated financial statements and notes included in our Annual Report on Form 10-K for the year ended December 31, 2016,2020, filed by both Noble-UKNoble and Noble-Cayman.Finco. The results of operations for interim periods are not necessarily indicative of the results to be expected for the full year.
Certain amounts
Note 2— Chapter 11 Emergence
On the Petition Date, Legacy Noble and certain of its subsidiaries, including Finco, filed voluntary petitions in prior periods have been reclassified to conformthe Bankruptcy Court seeking relief under chapter 11 of the Bankruptcy Code. The Plan was confirmed by the Bankruptcy Court on November 20, 2020, and the Debtors emerged from the bankruptcy proceedings on the Effective Date.
On the Effective Date, and pursuant to the current year presentation. In accordanceterms of the Plan, the Company:
•Appointed 5 new members to the Successor’s board of directors to replace all of the directors of the Predecessor, other than the director also serving as President and Chief Executive Officer, who was re-appointed pursuant to the Plan. Subsequent to the Effective Date, an additional director was appointed.
•Terminated and cancelled all ordinary shares and equity-based awards of Legacy Noble that were outstanding immediately prior to the Effective Date;
•Transferred approximately 31.7 million ordinary shares of Noble with our adoptiona nominal value of Accounting Standards Update$0.00001 per share (“ASU”Ordinary Shares”) No. 2016-9, Compensation—Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting, prior period excess tax benefitsholders of approximately $5.5 million, previously classified as a financing activity in “Employee stock transactions”Legacy Noble’s Senior Notes due 2026 (the “Guaranteed Notes”) in the Consolidated Statementcancellation of Cash Flowsthe Guaranteed Notes;
•Transferred approximately 2.1 million Ordinary Shares, approximately 8.3 million seven-year warrants with Black-Scholes protection (the “Tranche 1 Warrants”) with an exercise price of $19.27 and approximately 8.3 million seven-year warrants with Black-Scholes protection (the “Tranche 2 Warrants”) with an exercise price of $23.13 to holders of Legacy Noble’s then outstanding senior notes (other than the Guaranteed Notes) (the “Legacy Notes”) in cancellation of the Legacy Notes;
•Issued approximately 7.7 million Ordinary Shares and $216.0 million principal amount of our senior secured second lien notes (the “Second Lien Notes”) to participants in a rights offering (the “Rights Offering”) at an aggregate subscription price of $200.0 million;
•Issued approximately 5.6 million Ordinary Shares to the backstop parties (the “Backstop Parties”) to a Backstop Commitment Agreement, dated October 12, 2020 (the “Backstop Commitment Agreement”), among the Debtors and the Backstop Parties as Holdback Securities (as defined in the Backstop Commitment Agreement);
•Issued approximately 1.7 million Ordinary Shares to the Backstop Parties in respect of their backstop commitment to subscribe for Unsubscribed Securities (as defined in the Backstop Commitment Agreement);
•Issued approximately 1.2 million Ordinary Shares to the Backstop Parties in connection with the payment of the Backstop Premiums (as defined in the Backstop Commitment Agreement);
•Issued 2.8 million five-year warrants with no Black-Scholes protection (the “Tranche 3 Warrants”) with an exercise price of $124.40 to the holders of Legacy Noble’s ordinary shares outstanding prior to the Effective Date;
•Entered into a senior secured revolving credit agreement (the “Revolving Credit Agreement”) that provides for a $675.0 million senior secured revolving credit facility (with a $67.5 million sublimit for the nine months ended September 30, 2016, are now classified asissuance of letters of credit thereunder) (the “Revolving Credit Facility”);
•Entered into an operating activity in “Net change in other assetsindenture governing the Second Lien Notes;
•Entered into a registration rights agreement with certain parties who received Ordinary Shares under the Plan (the “Equity Registration Rights Agreement”); and liabilities” on
•Entered into a registration rights agreement with certain parties who received Second Lien Notes under the accompanying Condensed Consolidated Statement of Cash Flows for the comparative period. Prior period shares withheld for taxes on employee stock transactions of approximately $3.2 million, previously classified as an operating activity in “Net change in other assets and liabilities” in the Consolidated Statement of Cash Flows for the nine months ended September 30, 2016, are now classified as a financing activity in “Employee stock transactions” on the accompanying Condensed Consolidated Statement of Cash Flows for the comparative period. See Note 13— Accounting Pronouncements for additional information.Plan.
We have made certain reclassifications to our prior period amounts in our operating revenue by combining our other revenue with reimbursables revenue to conform to the current period presentation. Such reclassification did not have a material effect on our condensed consolidated statement of financial position, results of operations or cash flows.18
Note 2— Consolidated Joint Ventures
We maintain a 50 percent interest in two joint ventures, each with a subsidiary of Royal Dutch Shell plc (“Shell”), that own and operate the two Bully-class drillships. We have determined that we are the primary beneficiary of the joint ventures. Accordingly, we consolidate the entities in our condensed consolidated financial statements after eliminating intercompany transactions. Shell’s equity interests are presented as noncontrolling interests on our Condensed Consolidated Balance Sheets.
During the three and nine months ended September 30, 2017, the Bully joint ventures approved dividends totaling $30.9 million and $83.5 million, respectively, and paid dividends totaling $41.8 million and $52.6 million, respectively. During the three and nine months ended September 30, 2016, the Bully joint ventures approved and paid dividends totaling $41.8 million and $124.0 million, respectively. Of these amounts, 50 percent was paid to our joint venture partner.
The combined carrying amount of the Bully-class drillships at September 30, 2017 and December 31, 2016 totaled $1.3 billion and $1.4 billion, respectively. These assets were primarily funded through partner equity contributions. Cash held by the Bully joint ventures totaled approximately $79.3 million at September 30, 2017 as compared to approximately $34.7 million at December 31, 2016.
NOBLE CORPORATION PLC AND SUBSIDIARIES
NOBLE CORPORATIONFINANCE COMPANY AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unless otherwise indicated, dollar and share amounts in tables are in thousands, except per share data)
In addition, Noble entered into an exchange agreement with certain Backstop Parties which provided that, as soon as reasonably practicable after the Effective Date, the other parties to such agreement would deliver to the Company an aggregate of approximately 6.5 million Ordinary Shares issued pursuant to the Plan in exchange for the issuance of penny warrants to purchase up to approximately 6.5 million Ordinary Shares, with an exercise price of $0.01 per share (“Penny Warrants”). This exchange was completed in late February 2021.
Note 3— Earnings Per ShareManagement Incentive Plan. The Plan contemplated that on or after the Effective Date, the Company would adopt a long-term incentive plan and authorize and reserve 7.7 million Ordinary Shares for issuance pursuant to equity incentive awards to be granted under such plan. On February 18, 2021, the Company adopted the long-term incentive plan and authorized and reserved 7.7 million Ordinary Shares for awards to be granted under such plan.
Sources of Cash for Plan Distribution. All cash payments made by the Company under the Plan on the Effective Date were funded from cash on hand, proceeds of the Rights Offering, and proceeds of the Revolving Credit Facility.
Reorganization Items, Net
In accordance with ASC 852, any incremental expenses, gains and losses that are realized or incurred as of or subsequent to the Petition Date and before the Effective Date that are a direct result of the Chapter 11 Cases are recorded under “Reorganization items, net.” The following table presentssummarizes the computationcomponents of basicreorganization items included in our Condensed Consolidated Statements of Operations for the period January 1, 2021 through February 5, 2021:
| | | | | | | | | | | | | | |
| | Predecessor |
| | Noble | | Finco |
| | Period From | | Period From |
| | January 1, 2021 | | January 1, 2021 |
| | through | | through |
| | February 5, 2021 | | February 5, 2021 |
| | | | |
Professional fees (1) | | $ | (28,739) | | | $ | (8,095) | |
| Adjustments for estimated allowed litigation claims | | 77,300 | | | 0 | |
| Write-off of unrecognized share-based compensation | | (4,406) | | | (4,406) | |
| | | | |
| Gain on settlement of liabilities subject to compromise | | 2,556,147 | | | 2,556,147 | |
| Loss on fresh start adjustments | | (2,348,251) | | | (2,348,251) | |
| Total Reorganization items, net | | $ | 252,051 | | | $ | 195,395 | |
(1)Payments of $44.2 million and diluted earnings per share$7.2 million related to professional fees have been presented as cash outflows from operating activities in our Condensed Consolidated Statements of Cash Flows for Noble-UK:the period January 1, 2021 through February 5, 2021 for Noble and Finco, respectively.
Liabilities Subject to Compromise |
| | | | | | | | | | | | | | | | |
| | | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | | 2017 | | 2016 | | 2017 | | 2016 |
| Numerator: | | |
| | |
| | |
| | |
|
| Basic | | | | | | | | |
| Net income (loss) attributable to Noble-UK | | $ | (96,792 | ) | | $ | (55,081 | ) | | $ | (491,836 | ) | | $ | 373,270 |
|
| Net loss from discontinued operations, net of tax | | — |
| | — |
| | 1,486 |
| | — |
|
| Earnings allocated to unvested share-based payment awards | | — |
| | — |
| | — |
| | (12,754 | ) |
| Net income (loss) from continuing operations to common shareholders - basic | | $ | (96,792 | ) | | $ | (55,081 | ) | | $ | (490,350 | ) | | $ | 360,516 |
|
| Diluted | | |
| | |
| | |
| | |
|
| Net income (loss) attributable to Noble-UK | | $ | (96,792 | ) | | $ | (55,081 | ) | | $ | (491,836 | ) | | $ | 373,270 |
|
| Net loss from discontinued operations, net of tax | | — |
| | — |
| | 1,486 |
| | — |
|
| Net income (loss) from continuing operations to common shareholders - diluted | | $ | (96,792 | ) | | $ | (55,081 | ) | | $ | (490,350 | ) | | $ | 373,270 |
|
| Denominator: | | |
| | |
| | |
| | |
|
| Weighted average shares outstanding - basic | | 244,940 |
| | 243,224 |
| | 244,666 |
| | 243,089 |
|
Incremental shares issuable from assumed exercise of stock
options and unvested share-based payment awards | | — |
| | — |
| | — |
| | 8,600 |
|
| Weighted average shares outstanding - diluted | | 244,940 |
| | 243,224 |
| | 244,666 |
| | 251,689 |
|
| Earnings per share | | |
| | |
| | |
| | |
|
| Basic: | | | | | | | | |
| Income (loss) from continuing operations | | $ | (0.40 | ) | | $ | (0.23 | ) | | $ | (2.00 | ) | | $ | 1.48 |
|
| Loss from discontinued operations | | — |
| | — |
| | (0.01 | ) | | — |
|
| Net income (loss) attributable to Noble-UK | | $ | (0.40 | ) | | $ | (0.23 | ) | | $ | (2.01 | ) | | $ | 1.48 |
|
| Diluted: | | | | | |
|
| | |
| Income (loss) from continuing operations | | $ | (0.40 | ) | | $ | (0.23 | ) | | $ | (2.00 | ) | | $ | 1.48 |
|
| Loss from discontinued operations | | — |
| | — |
| | (0.01 | ) | | — |
|
| Net income (loss) attributable to Noble-UK | | $ | (0.40 | ) | | $ | (0.23 | ) | | $ | (2.01 | ) | | $ | 1.48 |
|
| Dividends per share | | $ | — |
| | $ | 0.02 |
| | $ | — |
| | $ | 0.19 |
|
Only those items havingFrom the Petition Date until the Effective Date, the Company operated as a dilutive impactdebtor-in-possession under the jurisdiction of the Bankruptcy Court and in accordance with provisions of the Bankruptcy Code. In accordance with ASC 852, on our basic earnings per shareCondensed Consolidated Balance Sheets prior to the Effective Date, the caption “Liabilities subject to compromise” reflects the expected allowed amount of the pre-petition claims that are included in diluted earnings per share. Innot fully secured and that have at least a possibility of not being repaid at the threefull claim amount. The Company has considered the chapter 11 motions approved by the Bankruptcy Court with respect to the amount and nine months ended September 30, 2017, approximately 12.1 million share-based awards, were excluded fromclassification of its pre-petition liabilities. The Company evaluated and adjusted the diluted earnings per share since the effect would have been anti-dilutive. In the three months ended September 30, 2016, approximately 10.6 million share-based awards were excluded from the diluted earnings per share since the effect would have been anti-dilutive. For the nine months ended September 30, 2016, approximately 1.5 million shares underlying stock options were excluded from the diluted earnings per share as such stock options were anti-dilutive.
Share capital
Asamount and classification of September 30, 2017, Noble-UK had approximately 245.0 million shares outstanding and trading as compared to approximately 243.2 million shares outstanding and trading at December 31, 2016. Our Board of Directors may increase our share capitalits pre-petition liabilities through the issuanceEffective Date.
Note 3— Reorganization and Fresh Start Accounting
In connection with our emergence from bankruptcy and in accordance with ASC 852, Noble and Finco qualified for and applied fresh start accounting on the Effective Date. Noble and Finco were required to apply fresh start accounting because (i) the holders of up to 53.0 million authorizedexisting Legacy Noble voting shares (at current nominalreceived less than 50% of the voting shares of the Successor, and (ii) the reorganization value of $0.01 per share) without obtaining shareholder approval.
The declarationNoble's and paymentFinco's assets, each of dividends require authorizationwhich approximated $1.7 billion, immediately prior to confirmation of the BoardPlan was less than the corresponding post-petition liabilities and allowed claims, each of Directors of Noble-UK, provided that such dividends on issued share capital may be paid only out of Noble-UK’s “distributable reserves” on its statutory balance sheet. Noble-UK is not permitted to pay dividends out of share capital, which includes share premiums. The resumption of the payment of future dividends will depend on our results of operations, financial condition, cash requirements, future business prospects, contractual restrictions and other factors deemed relevant by our Board of Directors.approximated $4.0 billion. Applying fresh start accounting resulted in new reporting entities with
NOBLE CORPORATION PLC AND SUBSIDIARIES
NOBLE CORPORATIONFINANCE COMPANY AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unless otherwise indicated, dollar and share amounts in tables are in thousands, except per share data)
no beginning retained earnings or accumulated deficit. Accordingly, our financial statements and notes after the Effective Date are not comparable to our financial statements and notes on and to prior to that date.
Share repurchasesWith the application of fresh start accounting, we allocated the reorganization value to our individual assets and liabilities (except for deferred income taxes) based on their estimated fair values in conformity with ASC Topic 805, Business Combinations. The amount of deferred taxes was determined in accordance with ASC Topic 740, Income Taxes and ASC 852. The Effective Date fair values of our assets and liabilities differed materially from their recorded values as reflected on the historical balance sheets.
As described in "Note 1— Organization and Basis of Presentation," Noble and Finco are referred to as Successor, as the context requires, and includes the financial position and results of operations of the reorganized Noble and Finco subsequent to February 5, 2021. References to Predecessor relate to the financial position and results of operations of Legacy Noble and Finco prior to, and including, February 5, 2021.
Reorganization Value and Valuation of Assets
The reorganization value represents the fair value of the Successor’s and Finco’s total assets and was derived from the enterprise value, which represents the estimated fair value of an entity’s long-term debt and equity. As set forth in the Plan, the enterprise value of the reorganized Debtors was estimated to be in the range of $1.1 billion to $1.6 billion with a midpoint of $1.3 billion. The enterprise value range was determined by using a discounted cash flow analysis and a peer group trading analysis, excluding unrestricted cash at emergence. Based on the estimates and assumptions discussed above, we estimated the enterprise value to be the midpoint of the range of estimated enterprise value of $1.3 billion.
The following table reconciles the enterprise value to the Successor equity as of the Effective Date:
| | | | | | | | |
| | February 5, 2021 |
| Enterprise Value | | $ | 1,300,300 | |
| Plus: Cash and cash equivalents | | 111,968 | |
| Less: Fair value of debt | | (393,500) | |
| | |
| Fair Value of Successor Equity | | $ | 1,018,768 | |
The following table reconciles the enterprise value to the reorganization value as of the Effective Date:
| | | | | | | | |
| | February 5, 2021 |
| Enterprise Value | | $ | 1,300,300 | |
| Plus: Cash and cash equivalents | | 111,968 | |
| Plus: Non-interest bearing current liabilities | | 185,410 | |
| Plus: Non-interest bearing non-current liabilities | | 108,268 | |
| Reorganization value of Successor assets | | $ | 1,705,946 | |
With the assistance of financial advisors, we determined the enterprise and corresponding equity value of the Successor by calculating the present value of future cash flows based on our financial projections. The enterprise value and corresponding equity value are dependent upon achieving future financial results set forth in our valuations, as well as the realization of certain other assumptions. All estimates, assumptions, valuations and financial projections, including the fair value adjustments, the enterprise value and equity value projections, are inherently subject to significant uncertainties and the resolution of contingencies beyond our control. Accordingly, the estimates, assumptions, valuations or financial projections may not be realized and actual results could vary materially.
Valuation Process
Under UK law, the Company is only permitted to purchase its own shares by wayapplication of fresh start accounting and with the assistance of valuation experts, we conducted an “off-market purchase” in a plan approved by shareholders. At September 30, 2017, we do not have shareholder authority to repurchase shares. Duringanalysis of the three and nine months ended September 30, 2017, no shares were repurchased.
Note 4— Receivables from Customers
In prior periods, we had receivables of approximately $14.4 million related to the Noble Max Smith, which had been disputed by our former customer, Petróleos Mexicanos (“Pemex”) and were classified as long-term and included in “Other assets” on our Condensed Consolidated Balance Sheet. The receivables were relatedSheet to lost revenues for downtime that occurred after our rig was damaged when one of Pemex's supply boats collided with our rig in 2010.
Paragon Offshore has announced that, as part of its bankruptcy plan, it will liquidate the Mexican entity currently prosecuting the Noble Max Smith claim against Pemex. While Noble owns all rights to amounts from that claim and will take available actions to recover such amounts, we believe the announced actions by Paragon Offshore creates uncertainty relating to the prosecutiondetermine if any of the claimCompany’s net assets would require a fair value adjustment as of the Effective Date. The results of our analysis indicated that our principal assets, which include mobile offshore drilling units, certain intangibles and associated recovery, and accordingly, the disputed amounts of approximately $14.4 million were written off through “Contract drilling services” costsdebt issued at emergence would require a fair value adjustment on the accompanying Condensed Consolidated Statements of Operations during the nine months ended September 30, 2017.
Note 5— Property and Equipment
Property and equipment, at cost, as of September 30, 2017 and December 31, 2016 for Noble-UK consistedEffective Date. The rest of the following:
|
| | | | | | | | |
| | | September 30, 2017 | | December 31, 2016 |
| Drilling equipment and facilities | | $ | 12,156,374 |
| | $ | 12,048,571 |
|
| Construction in progress | | 75,331 |
| | 112,103 |
|
| Other | | 190,060 |
| | 204,214 |
|
| Property and equipment, at cost | | $ | 12,421,765 |
| | $ | 12,364,888 |
|
Capital expenditures, including capitalized interest, totaled $74.4 million and $592.0 million for the nine months ended September 30, 2017 and 2016, respectively. During the three and nine months ended September 30, 2017, there was no capitalized interest dueCompany’s net assets were determined to the completion of our newbuild program. Capitalized interest was $8.5 million and$15.9 million for the three and nine months ended September 30, 2016, respectively.
During the three and nine months ended September 30, 2017, we recognized $14.3 million in "Contract drilling services" costs related to damages sustainedhave carrying values that approximated fair value on the Noble Danny Adkins andEffective Date. Further details regarding the Noble Jim Day during Hurricane Harvey in the U.S. Gulf of Mexico region.valuation process is described further below.
NOBLE CORPORATION PLC AND SUBSIDIARIES
NOBLE CORPORATIONFINANCE COMPANY AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unless otherwise indicated, dollar and share amounts in tables are in thousands, except per share data)
Property, Plant and Equipment
Note 6— Debt
Our total debt consistedThe valuation of the followingCompany’s mobile offshore drilling units and other related tangible assets was determined by using a combination of (1) the discounted cash flows expected to be generated from our drilling assets over their remaining useful lives and (2) the cost to replace our drilling assets, as adjusted by the current market for similar offshore drilling assets. Assumptions used in our assessment included, but were not limited to, future marketability of each unit in light of the current market conditions and its current technical specifications, timing of future contract awards and expected operating dayrates, operating costs, utilization rates, tax rates, discount rates, capital expenditures, market values, weighting of market values, reactivation costs, estimated economic useful lives and, in certain cases, our belief that a drilling unit is no longer marketable and is unlikely to return to service in the near to medium term. We included an allocation for corporate overhead when calculating the discounted cash flows expected to be generated from our drilling assets over their remaining useful lives. The cash flows were discounted at September 30, 2017our weighted average cost of capital (“WACC”), which was derived from a blend of our after-tax cost of debt and December 31, 2016:our cost of equity, and computed using public share price information for similar offshore drilling market participants, certain US Treasury rates, and certain risk premiums specific to the Company.
The valuation of our remaining property and equipment, including owned real estate, construction in progress assets, and other equipment essential to our operations, was determined utilizing a combination of replacement cost and market valuation approaches. Specifically, the land was valued using a sales comparison method of the market approach, in which we utilized recent sales of comparable properties to estimate the fair value on a US Dollar per acre basis. The remaining property and equipment were valued using a cost approach, in which we estimated the replacement cost of the assets and applied adjustments for physical depreciation and obsolescence, where applicable, to arrive at a fair value. |
| | | | | | | | |
| | | September 30, 2017 | | December 31, 2016 |
| Senior unsecured notes | | | | |
| 2.50% Senior Notes due March 2017 | | $ | — |
| | $ | 299,992 |
|
| 5.75% Senior Notes due March 2018 | | 249,911 |
| | 249,771 |
|
| 7.50% Senior Notes due March 2019 | | 201,695 |
| | 201,695 |
|
| 4.90% Senior Notes due August 2020 | | 167,612 |
| | 167,576 |
|
| 4.625% Senior Notes due March 2021 | | 208,561 |
| | 208,538 |
|
| 3.95% Senior Notes due March 2022 | | 125,510 |
| | 125,488 |
|
| 7.75% Senior Notes due January 2024 | | 981,738 |
| | 980,117 |
|
| 7.70% Senior Notes due April 2025 | | 448,983 |
| | 448,909 |
|
| 6.20% Senior Notes due August 2040 | | 399,899 |
| | 399,898 |
|
| 6.05% Senior Notes due March 2041 | | 397,790 |
| | 397,758 |
|
| 5.25% Senior Notes due March 2042 | | 498,393 |
| | 498,369 |
|
| 8.70% Senior Notes due April 2045 | | 394,647 |
| | 394,613 |
|
| Total debt | | 4,074,739 |
| | 4,372,724 |
|
| Less: Unamortized debt issuance costs | | (29,760 | ) | | (32,613 | ) |
Less: Current maturities of long-term debt (1) | | (249,652 | ) | | (299,882 | ) |
| Long-term debt, net of debt issuance costs | | $ | 3,795,327 |
| | $ | 4,040,229 |
|
| |
(1)
| Presented net of current portion of unamortized debt issuance costs of $0.3 million and $0.1 million at September 30, 2017 and December 31, 2016, respectively. |
At emergence, we held contracts for drilling services related to certain long-term contracts. Given the contract dayrates relative to market dayrates at the Effective Date, we determined the contracts represent favorable contract intangible assets. Based on a discounted cash flow analysis utilizing the dayrate differential between current market dayrates and the contract dayrates, and a risk-adjusted discount rate of 17%, we determined the aggregate fair value of our contracts for these certain contracts to be $113.4 million above the fair value of the contracts if they were priced at current market dayrates on the Effective Date. The dayrate differential on these contracts as compared to prior years was primarily driven by the combination of continued market oversupply of offshore drilling units, the volatility in oil and gas price and the unprecedented crude product consumption levels experienced in 2020.
Debt
The valuations of the Company’s Revolving Credit Facility and Commercial Paper Program
We currently have a five-year $2.4 billion senior unsecured credit facility that matures in January 2020 and is guaranteed by our indirect, wholly owned subsidiaries, Noble Holding (U.S.) LLC (“NHUS”) and Noble Holding International Limited (“NHIL”). The credit facility provides us with the ability to issue up to $500.0 million in letters of credit. The issuance of letters of credit under the facility reduces the amount available for borrowing.
Throughout the termSecond Lien Notes were based on relevant market data as of the credit facility, we pay a facility fee onEffective Date and the daily unused amountterms of each of the underlying commitment which ranges from 0.1 percent to 0.35 percent depending on our debt ratings with each agency. At September 30, 2017, based on our debt ratings on that date, the facility fee was 0.35 percent. At September 30, 2017, we had no borrowings outstanding or letters of credit issued. In addition, our credit facility has provisions which vary the applicable interest rates based upon our debt ratings. At September 30, 2017, the interest rate in effect is the highest permitted interest rate under the credit facility.
Debt Issuances
In December 2016, we issued $1.0 billion aggregate principal amount of 7.75% Senior Notes, which we issued through our indirect wholly-owned subsidiary, NHIL. The net proceeds of approximately $967.6 million, after estimated expenses, were primarily used to retire a portion of our near-term Senior Notes in a related tender offer and the remaining portion was used for general corporate purposes.
Senior Notes Interest Rate Adjustments
During 2016 and to date in 2017, we experienced debt rating downgrades by Moody’s Investors Service and S&P Global Ratings (“S&P”), which reduced our debt ratings below investment grade. As a result of these downgrades, we experienced interest rate increases during 2016 and 2017 on our Senior Notes due 2018, 2025 and 2045, all of which are subject to provisions that vary the applicable interest rates based on our debt rating. On October 18, 2017, S&P further reduced our debt rating, which will increaserespective instruments. Considering the interest rates and implied yields for the Revolving Credit Facility and Second Lien Notes were within a range of comparable market yields (with considerations for term and seniority), fair value adjustments were recorded relating to each of the instruments.
Successor Warrants
On the Effective Date, the Company issued Tranche 1 Warrants and Tranche 2 Warrants to certain former bondholders as part of the settlement of their pre-petition claims. The Company also issued Tranche 3 Warrants to holders of the Predecessor’s ordinary shares. The fair values of the warrants on our 2025 and 2045 Senior Notes to 7.95% and 8.95%, respectively, beginning in April 2018. Once the new interest rates take effect in April 2018, these Senior Notes will have reachedEffective Date were determined using an options pricing model while considering the contractually-defined maximum interest rate setcontractual terms for each rating agency.respective tranche, including the mandatory exercise provisions related to Tranche 1 Warrants and Tranche 2 Warrants. The interestkey market data assumptions for the options pricing model are the estimated volatility and the risk-free rate. The volatility assumption was estimated using market data for similar offshore drilling market participants with consideration for differences in size and leverage. The risk-free rate assumption was based on US Constant Maturity Treasury rates on these Senior Notes may be decreased if our debt ratings were to be raised by either rating agency above specified levels.as of the Effective Date.
NOBLE CORPORATION PLC AND SUBSIDIARIES
NOBLE CORPORATIONFINANCE COMPANY AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unless otherwise indicated, dollar and share amounts in tables are in thousands, except per share data)
Condensed Consolidated Balance Sheet at Emergence
Our other outstanding senior notes, includingThe adjustments set forth in the Senior Notes due 2024 issued in December 2016, do not contain provisions varying applicable interest rates based upon our credit rating.
Debt Tender Offers and Repayments
In December 2016, we commenced cash tender offers for our 4.90% Senior Notes due 2020,following Condensed Consolidated Balance Sheet as of which $467.8 million principal amount was outstanding, our 4.625% Senior Notes dueFebruary 5, 2021 of which $396.6 million principal amount was outstanding and our 3.95% Senior Notes due 2022, of which $400.0 million principal amount was outstanding. On December 28, 2016, we purchased $762.3 million of these Senior Notes for $750.0 million, plus accrued interest, using a portionreflect the consummation of the net proceeds oftransactions contemplated by the $1.0 billion Senior Notes due 2024 issuance in December 2016. In December 2016,Plan and carried out by the Company (“Reorganization Adjustments”) and the fair value adjustments as a result of the application of fresh start accounting (“Fresh Start Adjustments”). The explanatory notes provide additional information with regard to the adjustments recorded, the methods used to determine fair values and significant assumptions or inputs.
The following table reflects the reorganization and application of ASC 852 on our condensed consolidated balance sheet as of February 5, 2021:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Predecessor | | Reorganization Adjustments | | Fresh Start Adjustments | | Successor |
| ASSETS | | | | | | | | |
| Current assets | | | | | | | | |
| Cash and cash equivalents | | $ | 317,962 | | | $ | (205,994) | | (a) | $ | 0 | | | $ | 111,968 | |
| Accounts receivable, net | | 189,207 | | | 0 | | | 0 | | | 189,207 | |
| Taxes receivable | | 32,556 | | | 0 | | | 0 | | | 32,556 | |
| Prepaid expenses and other current assets | | 63,056 | | | (20,302) | | (b) | (10,073) | | (m) | 32,681 | |
| Total current assets | | 602,781 | | | (226,296) | | | (10,073) | | | 366,412 | |
| Intangible assets | | 0 | | | 0 | | | 113,389 | | (n) | 113,389 | |
| Property and equipment, at cost | | 4,787,661 | | | 0 | | | (3,631,936) | | (o) | 1,155,725 | |
| Accumulated depreciation | | (1,221,033) | | | 0 | | | 1,221,033 | | (o) | 0 | |
| Property and equipment, net | | 3,566,628 | | | 0 | | | (2,410,903) | | | 1,155,725 | |
| Other assets | | 69,940 | | | 10,983 | | (c) | (10,503) | | (m) | 70,420 | |
| Total assets | | $ | 4,239,349 | | | $ | (215,313) | | | $ | (2,318,090) | | | $ | 1,705,946 | |
| LIABILITIES AND EQUITY | | | | | | | | |
| Current liabilities | | | | | | | | |
| Accounts payable | | $ | 89,215 | | | $ | (7,266) | | (d) | $ | 0 | | | $ | 81,949 | |
| Accrued payroll and related costs | | 35,615 | | | 0 | | | 0 | | | 35,615 | |
| Taxes payable | | 34,211 | | | 0 | | | 0 | | | 34,211 | |
| | | | | | | | |
| Other current liabilities | | 64,943 | | | 21,305 | | (e) | (52,613) | | (m) | 33,635 | |
| Total current liabilities | | 223,984 | | | 14,039 | | | (52,613) | | | 185,410 | |
| Long-term debt | | 0 | | | 352,054 | | (f) | 41,446 | | (p) | 393,500 | |
| Deferred income taxes | | 9,303 | | | (17,328) | | (g) | 29,550 | | (q) | 21,525 | |
| Other liabilities | | 108,489 | | | 4,659 | | (h) | (26,405) | | (m) | 86,743 | |
| Liabilities subject to compromise | | 4,143,812 | | | (4,143,812) | | (i) | 0 | | | 0 | |
| Total liabilities | | 4,485,588 | | | (3,790,388) | | | (8,022) | | | 687,178 | |
| Shareholders’ equity | | | | | | | | |
| Common stock (Predecessor) | | 2,511 | | | (2,511) | | (j) | — | | | — | |
| Common stock (Successor) | | — | | | 1 | | (k) | — | | | 1 | |
| Additional paid-in capital (Predecessor) | | 815,505 | | | (815,505) | | (j) | — | | | — | |
| Additional paid-in capital (Successor) | | — | | | 1,018,767 | | (k) | — | | | 1,018,767 | |
| Accumulated deficit | | (1,006,351) | | | 3,374,323 | | (l) | (2,367,972) | | (r) | 0 | |
| Accumulated other comprehensive loss | | (57,904) | | | 0 | | | 57,904 | | (s) | 0 | |
| Total shareholders’ equity | | (246,239) | | | 3,575,075 | | | (2,310,068) | | | 1,018,768 | |
| Total liabilities and equity | | $ | 4,239,349 | | | $ | (215,313) | | | $ | (2,318,090) | | | $ | 1,705,946 | |
NOBLE CORPORATION AND SUBSIDIARIES
NOBLE FINANCE COMPANY AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unless otherwise indicated, dollar and share amounts in tables are in thousands, except per share data)
Reorganization Adjustments
(a)Represents the reorganization adjustment to cash and cash equivalents:
| | | | | | | | |
| Proceeds from Rights Offering | | $ | 200,000 | |
| Proceeds from the Revolving Credit Facility, net of issuance costs | | 167,361 | |
| Transfer of cash from restricted cash | | 300 | |
| Payment of professional service fees | | (23,261) | |
| Payment of the pre-petition revolving credit facility principal and accrued interest | | (550,019) | |
| Deconsolidation of NHUK | | (300) | |
| Payment of recurring debt fees | | (75) | |
| Change in cash and cash equivalents | | $ | (205,994) | |
(b)Represents the reorganization adjustment for the following:
| | | | | | | | |
| Payment of professional service fees from escrow | | $ | (12,380) | |
| Payment of Paragon litigation settlement form escrow | | (7,700) | |
| Transfer of restricted cash to cash | | (300) | |
| Adjustment to miscellaneous receivables related to the deconsolidation of NHUK upon emergence | | 78 | |
| Change in prepaid expenses and other current assets | | $ | (20,302) | |
(c)Adjustments to other assets relates to capitalization of long-term debt issuance costs related to the Revolving Credit Facility of $11.1 million and the impact of reorganization adjustments on deferred tax assets of $(0.1) million.
(d)Adjustments to accounts payable related to the payment of professional fees $(15.2) million and the reinstatement of trade payables from liabilities subject to compromise of $8.0 million.
(e)Adjustment of $21.3 million to other current liabilities related to the reinstatement of liabilities subject to compromise.
(f)Represents $352.1 million of outstanding borrowings, net of financing costs, under the Second Lien Notes and Revolving Credit Facility.
(g)Represents the write-off of $(17.3) million deferred income taxes as the result of the Company’s internal restructuring.
(h)Represents cancellation of $(0.1) million cash-based compensation plans and the reinstatement of$4.7 millionright-of-use lease liabilities.
NOBLE CORPORATION AND SUBSIDIARIES
NOBLE FINANCE COMPANY AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unless otherwise indicated, dollar and share amounts in tables are in thousands, except per share data)
(i)Liabilities subject to compromise settled or reinstated in accordance with the Plan and the resulting gain were determined as follows:
| | | | | | | | |
| 4.900% senior notes due Aug. 2020 | | $ | 62,535 | |
| 4.625% senior notes due Mar. 2021 | | 79,937 | |
| 3.950% senior notes due Mar. 2022 | | 21,213 | |
| 7.750% senior notes due Jan. 2024 | | 397,025 | |
| 7.950% senior notes due Apr. 2025 | | 450,000 | |
| 7.875% senior notes due Feb. 2026 | | 750,000 | |
| 6.200% senior notes due Aug. 2040 | | 393,597 | |
| 6.050% senior notes due Mar. 2041 | | 395,000 | |
| 5.250% senior notes due Mar. 2042 | | 483,619 | |
| 8.950% senior notes due Apr. 2045 | | 400,000 | |
| 5.958% revolving credit facility maturing Jan. 2023 | | 545,000 | |
| Accrued and unpaid interest | | 110,300 | |
| Protection and indemnity insurance liabilities | | 25,669 | |
| Accounts payable and other payables | | 8,163 | |
| Estimated loss on litigation | | 15,700 | |
| Lease liabilities | | 6,054 | |
| Total consolidated liabilities subject to compromise | | 4,143,812 | |
| Issuance of Successor common stock | | (854,909) | |
| Issuance of Successor warrants to certain Predecessor creditors | | (141,029) | |
| Payment of the pre-petition revolving credit facility principal and accrued interest | | (550,020) | |
| Payment of Paragon litigation settlement from escrow | | (7,700) | |
| Reinstatement of Transocean litigation liability | | (8,000) | |
| Reinstatement of protection and indemnity insurance liabilities | | (11,791) | |
| Reinstatement of trade payables and right-of-use lease liabilities | | (14,216) | |
| Gain on settlement of liabilities subject to compromise | | $ | 2,556,147 | |
(j)Represents the cancellation of the Predecessor’s common stock of $(2.5) million and Additional paid-in capital of $(815.5) million.
NOBLE CORPORATION AND SUBSIDIARIES
NOBLE FINANCE COMPANY AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unless otherwise indicated, dollar and share amounts in tables are in thousands, except per share data)
(k)Represents the reorganization adjustments to common stock and additional paid in capital:
| | | | | | | | |
| Par value of 50 million shares of new common stock issued | | $ | 1 | |
| Capital in excess of par value of 50 million issued and authorized shares of new common stock issued | | 875,931 | |
| Fair value of new warrants issued | | 142,836 | |
| Total Successor equity issued on the Effective Date | | $ | 1,018,768 | |
(l)Represents the reorganization adjustments to accumulated deficit:
| | | | | | | | |
| Gain on settlement of liabilities subject to compromise | | $ | 2,556,147 | |
| Professional fees and success fees | | (15,017) | |
| Write-off of unrecognized share-based compensation | | (4,406) | |
| Reorganization items, net | | 2,536,724 | |
| Cancellation of Predecessor common stock and additional paid-in capital | | 820,299 | |
| Cancellation of Predecessor cash and equity compensation plans | | 2,183 | |
| Issuance of Successor warrants to Predecessor equity holders | | (1,807) | |
| Deconsolidation of NHUK | | (222) | |
| Recognition of recurring debt fees | | (75) | |
| Tax impacts of reorganization | | 17,221 | |
| Net impact to Accumulated Deficit | | $ | 3,374,323 | |
Fresh Start Adjustments
(m)Reflects adjustments to capitalized deferred costs, deferred revenue and pension balances due to the application of fresh start accounting as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Prepaid expenses and other current assets | | Other assets | | Other current liabilities | | Other liabilities |
| Deferred contract assets and revenues | $ | (10,073) | | | $ | (2,616) | | | $ | (52,616) | | | $ | (20,320) | |
| Write-off of certain financing costs | 0 | | | (6,238) | | | 0 | | | 0 | |
| Pension assets and obligations | 0 | | | (1,010) | | | 3 | | | (6,085) | |
| Fair value adjustments to other assets | 0 | | | (639) | | | 0 | | | 0 | |
| $ | (10,073) | | | $ | (10,503) | | | $ | (52,613) | | | $ | (26,405) | |
(n)Reflects the fair value adjustment of $113.4 million to record an intangible asset for favorable contracts with customers.
(o)Reflects the fair value adjustment of$2.4 billionto property and equipment of the Predecessor. The following table presents a comparison of the historical and new fair values upon emergence:
| | | | | | | | | | | | | | | | | |
| | Historical Value | | | Fair Value |
| Drilling equipment and facilities | | $ | 4,355,384 | | | | $ | 1,070,931 | |
| Construction in progress | | 231,626 | | | | 75,159 | |
| Other | | 200,651 | | | | 9,635 | |
| Less: accumulated depreciation | | (1,221,033) | | | | 0 | |
| Property and equipment, at cost | | $ | 3,566,628 | | | | $ | 1,155,725 | |
(p)Reflects a fair value adjustment of $41.4 million to the carrying value of the Second Lien Notes due to application of fresh start accounting.
(q)New deferred tax balances of $29.6 million were established for favorable contracts with customers due to application of fresh start accounting.
NOBLE CORPORATION AND SUBSIDIARIES
NOBLE FINANCE COMPANY AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unless otherwise indicated, dollar and share amounts in tables are in thousands, except per share data)
(r)The following table summarizes the cumulative impact of the fresh start adjustments, as discussed above, the elimination of the Predecessor’s accumulated other comprehensive loss, and the adjustments required to eliminate accumulated deficit:
| | | | | | | | |
| Fair value adjustment to Prepaid and other current assets | | $ | (10,073) | |
| Fair value adjustment to Intangible assets | | 113,389 | |
| Fair value adjustment to Property and equipment, net | | (2,410,903) | |
| Fair value adjustment to Other assets | | (10,503) | |
| Fair value adjustment to Other current liabilities | | 52,613 | |
| Fair value adjustment to Long-term debt | | (41,446) | |
| Fair value adjustment to Deferred income taxes | | (9,829) | |
| Fair value adjustment to Other liabilities | | 26,405 | |
| Derecognition of Predecessor Accumulated other comprehensive loss | | (57,904) | |
| Total fresh start adjustments included in Reorganization items, net | | (2,348,251) | |
| Tax impact of fresh start adjustments | | (19,721) | |
| Net change in accumulated deficit | | $ | (2,367,972) | |
(s)Reflects $57.9 million for the derecognition of Predecessor Accumulated other comprehensive loss through Reorganization items, net.
NOBLE CORPORATION AND SUBSIDIARIES
NOBLE FINANCE COMPANY AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unless otherwise indicated, dollar and share amounts in tables are in thousands, except per share data)
Note 4— Acquisitions
On April 15, 2021, Noble purchased Pacific Drilling Company LLC (“Pacific Drilling”), an international offshore drilling contractor, in an all-stock transaction (the “Merger”). Pursuant to the terms and conditions set forth in an Agreement and Plan of Merger dated March 25, 2021, (a) each membership interest in Pacific Drilling was converted into the right to receive 6.366 Ordinary Shares and (b) each of Pacific Drilling’s warrants outstanding immediately prior to the effective time of the Merger was converted into the right to receive 1.553 Ordinary Shares. As part of the transaction, Pacific Drilling’s equity holders received 16.6 million Ordinary Shares, or approximately 24.9% of the outstanding Ordinary Shares and Penny Warrants at closing. The results of Pacific Drilling’s operations are included in the Company’s results of operations effective April 15, 2021. In connection with this acquisition, the Company acquired 7 floaters and subsequently sold 2 floaters in June 2021 for net proceeds of $29.7 million. In connection with this acquisition, the Company incurred $8.8 million and $6.7 million of acquisition related costs during the period from February 6 through June 30, 2021 and the three months ended June 30, 2021, respectively.
Purchase Price Allocation
The transaction has been accounted for using the acquisition method of accounting under ASC Topic 805, Business Combinations, with Noble being treated as the accounting acquirer. Under the acquisition method of accounting, the assets and liabilities of Pacific Drilling and its subsidiaries have been recorded at their respective fair values as of the date of completion of the Merger and added to Noble’s. The preliminary purchase price assessment remains an ongoing process and is subject to change for up to one year subsequent to the closing date of the Merger.
Determining the fair values of the assets and liabilities of Pacific Drilling and the consideration paid requires judgment and certain assumptions to be made, the most significant of these being related to the valuation of Pacific Drilling’s mobile offshore drilling units and other related tangible assets and the fair value of the Ordinary Shares issued by Noble. The valuation of the Pacific Drilling’s mobile offshore drilling units was determined by using a combination of (1) the discounted cash flows expected to be generated from the drilling assets over their remaining useful lives and (2) the cost to replace the drilling assets, as adjusted by the current market for similar offshore drilling assets. Assumptions used in our assessment included, but were not limited to, future marketability of each unit in light of the current market conditions and its current technical specifications, timing of future contract awards and expected operating dayrates, operating costs, utilization rates, tax rates, discount rates, capital expenditures, market values, weighting of market values, reactivation costs, estimated economic useful lives and, in certain cases, our belief that a drilling unit is no longer marketable and is unlikely to return to service in the near to medium term. We included an allocation for corporate overhead when calculating the discounted cash flows expected to be generated from our drilling assets over their remaining useful lives. The cash flows were discounted at our weighted average cost of capital (“WACC”), which was derived from a blend of our after-tax cost of debt and our cost of equity, and computed using public share price information for similar offshore drilling market participants, certain US Treasury rates, and certain risk premiums specific to the Company. The inputs and assumptions related to these assets are categorized as Level 3 in the fair value hierarchy.
As Noble was not yet trading on the New York Stock Exchange at the time of the Merger, the valuation of our Ordinary Shares issued by Noble as consideration required an analysis of the discounted cash flows expected to be generated by the drilling assets of the combined entity. These discounted cash flows were derived utilizing many of the same types of assumptions as were used in the valuation of the Noble drilling assets at emergence as well the Pacific Drilling assets. In addition, the discounted cash flows of the combined entity considered annual cost saving synergies from the operation of the Noble and Pacific Drilling assets as a single fleet, and were accordingly discounted at a market participant WACC for the combined entity. Lastly, the valuation of the Ordinary Shares considered the fair value of debt, warrants and the management incentive plan of the combined entity to arrive at the fair value of common equity. The inputs and assumptions related to the value of Noble’s Ordinary Shares are also categorized as Level 3 in the fair value hierarchy.
The Merger resulted in a gain on bargain purchase due to the estimated fair value of the identifiable net assets acquired exceeding the purchase consideration transferred by $64.5 million and is shown as a gain on bargain purchase on Noble’s consolidated statement of operations. Management reviewed the Pacific Drilling assets acquired and liabilities assumed as well as the assumptions utilized in estimating their fair values. Upon completion of our assessment, the Company concluded that recording a gain on bargain purchase was appropriate and required under US GAAP. The bargain purchase was a result of a combination of factors, including a prolonged downturn in the drilling industry which led to challenging fundamentals for many competitors in the offshore drilling sector. The Company believes the seller was motivated to complete the transaction as the emerging market dynamics do not appear to be favorable to smaller rig fleets which operate across multiple regions.
NOBLE CORPORATION AND SUBSIDIARIES
NOBLE FINANCE COMPANY AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unless otherwise indicated, dollar and share amounts in tables are in thousands, except per share data)
The following table represents the preliminary allocation of the total purchase price of Pacific Drilling to the identifiable assets acquired and the liabilities assumed based on the fair values as of the acquisition date.
| | | | | | | | | | | | | | |
| Consideration: | | | | |
| Pacific Drilling membership interests outstanding | | 2,500 | | | |
| Exchange Ratio | | 6.366 | | | 15,915 | |
| Pacific Drilling warrants outstanding | | 441 | | | |
| Exchange Ratio | | 1.553 | | | 685 | |
| Noble Ordinary Shares issued | | | | 16,600 | |
| Fair value of Noble Ordinary Shares on April 15, 2021 | | | | $ | 21.55 | |
| Total consideration | | | | $ | 357,662 | |
| | | | |
| Assets acquired: | | | | |
| Cash and cash equivalents | | | | $ | 54,970 | |
| Accounts receivable | | | | 17,457 | |
| Taxes receivable | | | | 1,585 | |
| Prepaid expenses and other current assets | | | | 14,081 | |
| Total current assets | | | | 88,093 | |
| Property and equipment, net | | | | 346,167 | |
| Assets held for sale | | | | 30,063 | |
| Other assets | | | | 2,631 | |
| Total assets acquired | | | | 466,954 | |
| Liabilities assumed: | | | | |
| Accounts payable | | | | 18,603 | |
| Other current liabilities | | | | 2,900 | |
| Accrued payroll and related costs | | | | 16,128 | |
| Taxes payable | | | | 1,951 | |
| Total current liabilities | | | | 39,582 | |
| Deferred income taxes | | | | 798 | |
| Other liabilities | | | | 4,433 | |
| Total liabilities assumed | | | | 44,813 | |
| Net assets acquired | | | | $ | 422,141 | |
| Gain on bargain purchase | | | | 64,479 | |
| Purchase price consideration | | | | $ | 357,662 | |
NOBLE CORPORATION AND SUBSIDIARIES
NOBLE FINANCE COMPANY AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unless otherwise indicated, dollar and share amounts in tables are in thousands, except per share data)
Pacific Drilling Revenue and Net Income
The following table represents Pacific Drilling’s revenue and earnings included in Noble’s consolidated statement of operations subsequent to the closing of the Merger. | | | | | | | | | | | | | | | | | |
| | Successor | | | |
| | | | Period From | | | |
| | Three Months | | February 6, 2021 | | | |
| | Ended | | through | | | |
| | June 30, 2021 | | June 30, 2021 | | | |
| Revenue | | $ | 29,948 | | | $ | 29,948 | | | | |
| Net loss | | $ | (16,333) | | | $ | (16,333) | | | | |
Pro Forma Financial Information
The following unaudited pro forma summary presents the results of operations as if the Merger had occurred on February 6, 2021. The pro forma summary uses estimates and assumptions based on information available at the time. Management believes the estimates and assumptions to be reasonable; however, actual results may have differed significantly from this pro forma financial information. The pro forma information does not reflect any synergy savings that might have been achieved from combining the operations and is not intended to reflect the actual results that would have occurred had the companies actually been combined during the periods presented.
| | | | | | | | | | | | | | |
| | Successor |
| | | | Period From |
| | Three Months | | February 6, 2021 |
| | Ended | | through |
| | June 30, 2021 | | June 30, 2021 |
| Revenue | | $ | 225,916 | | | $ | 334,450 | |
| Net loss | | $ | (48,972) | | | $ | (29,805) | |
| Net loss per share | | | | |
| Basic | | $ | (0.74) | | | $ | (0.45) | |
| Diluted | | $ | (0.74) | | | $ | (0.45) | |
The pro forma results include, among others, (i) a reduction in Pacific Drilling’s historically reported depreciation expense for adjustments to property and equipment and (ii) an adjustment to reflect the gain on bargain purchase as if the Merger had occurred on February 6, 2021.
Note 5— Accounting Pronouncements
Accounting Standards Adopted
In December 2019, the FASB issued Accounting Standards Update (“ASU”) No. 2019-12, which amends ASC Topic 740, Income Taxes. This update simplifies the accounting for income taxes by removing certain exceptions to general principles. The amendment is effective for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years, and is required to be adopted on a retrospective basis for all periods presented.
We adopted ASU No. 2019-12, effective January 1, 2021. The adoption of this guidance did not have a material impact on our condensed consolidated financial statements.
Recently Issued Accounting Standards
With the exception of the updated standards discussed above, there have been no new accounting pronouncements not yet effective that have significance, or potential significance, to our condensed consolidated financial statements.
NOBLE CORPORATION AND SUBSIDIARIES
NOBLE FINANCE COMPANY AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unless otherwise indicated, dollar and share amounts in tables are in thousands, except per share data)
Note 6— Income (Loss) Per Share
The following table presents the computation of basic and diluted loss per share for Noble:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | | |
| | Successor | | | Predecessor |
| | | | Period From | | | Period From | | | | |
| | Three Months | | February 6, 2021 | | | January 1, 2021 | | Three Months | | Six Months |
| | Ended | | through | | | through | | Ended | | Ended |
| | June 30, 2021 | | June 30, 2021 | | | February 5, 2021 | | June 30, 2020 | | June 30, 2020 |
| Numerator: | | | | | | | | | | | |
| Basic | | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| Net income (loss) | | $ | 20,435 | | | $ | 2,211 | | | | $ | 250,228 | | | $ | (42,194) | | | $ | (1,104,871) | |
| Diluted | | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| Net income (loss) | | $ | 20,435 | | | $ | 2,211 | | | | $ | 250,228 | | | $ | (42,194) | | | $ | (1,104,871) | |
| Denominator: | | | | | | | | | | | |
| Weighted average shares outstanding - basic | | 64,048 | | | 58,816 | | | | 251,115 | | | 250,978 | | | 250,512 | |
| Dilutive effect of share-based awards | | 3,114 | | | 3,114 | | | | 5,456 | | | 0 | | | 0 | |
| Dilutive effect of warrants | | 884 | | | 169 | | | | 0 | | | 0 | | | 0 | |
| Weighted average shares outstanding - diluted | | 68,046 | | | 62,099 | | | | 256,571 | | | 250,978 | | | 250,512 | |
| Per share data | | | | | | | | | | | |
| Basic: | | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| Net income (loss) | | $ | 0.32 | | | $ | 0.04 | | | | $ | 1.00 | | | $ | (0.17) | | | $ | (4.41) | |
| Diluted: | | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| Net income (loss) | | $ | 0.30 | | | $ | 0.04 | | | | $ | 0.98 | | | $ | (0.17) | | | $ | (4.41) | |
| | | | | | | | | | | |
Only those items having a dilutive impact on our basic loss per share are included in diluted loss per share. The following table displays the share-based instruments that have been excluded from diluted income or loss per share since the effect would have been anti-dilutive:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Successor | | | Predecessor |
| | | | Period From | | | Period From | | | | |
| | | | February 6, 2021 | | | January 1, 2021 | | | | |
| | Three Months Ended | | through | | | through | | Three Months Ended | | Six Months Ended |
| | June 30, 2021 | | June 30, 2021 | | | February 5, 2021 | | June 30, 2020 | | June 30, 2020 |
| Share-based awards | | 0 | | | 0 | | | | 556 | | | 11,600 | | | 11,600 | |
Warrants (1) | | 11,104 | | | 11,104 | | | | 0 | | | 0 | | | 0 | |
| | | | | | | | | | | |
(1) Represents the total number of warrants outstanding which did not have a dilutive effect. In periods where the warrants are determined to be dilutive, the number of shares which will be included in the computation of diluted shares is determined using the treasury stock method.
Share capital
Successor Share capital
On the Effective Date, pursuant to the Plan, Noble issued 50 million Ordinary Shares. Subsequent to the Effective Date, approximately 6.5 million Ordinary Shares were exchanged for Penny Warrants to purchase up to approximately 6.5 million Ordinary shares, with an exercise price of $0.01 per share. Ordinary Shares issuable upon the exercise of Penny Warrants were included in the number of outstanding shares used for the computation of basic net loss per share prior to the exercise of those warrants. As of June 30, 2021, Noble had approximately 60.2 million Ordinary Shares outstanding as compared to approximately 251.1 million Legacy Noble ordinary shares outstanding and trading at December 31, 2020. Pursuant to the Memorandum of Association of Noble Corporation, the share capital of Noble is $6,000 divided into 500,000,000 ordinary shares of a par value of $0.00001 each and 100,000,000 shares of a par value of $0.00001, each of such class or classes
NOBLE CORPORATION AND SUBSIDIARIES
NOBLE FINANCE COMPANY AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unless otherwise indicated, dollar and share amounts in tables are in thousands, except per share data)
having the rights as the board of directors of Noble (the “Board”) may determine from time to time.
Predecessor Share capital
As discussed in “Note 2— Chapter 11 Emergence,” on the Effective Date and pursuant to the terms of the Plan, all of the Predecessor’s ordinary shares were cancelled. In accordance with the Plan, all agreements, instruments and other documents evidencing, relating to or otherwise connected with any of Legacy Noble’s equity interests outstanding prior to the Effective Date, including all equity-based awards, were cancelled and all such equity interests have no further force or effect after the Effective Date. Pursuant to the Plan, the holders of Legacy Noble’s ordinary shares outstanding prior to the Effective Date received their pro rata share of the Tranche 3 Warrants to acquire Ordinary Shares.
Note 7— Property and Equipment
Property and equipment, at cost consisted of the following:
| | | | | | | | | | | | | | | | | |
| | Successor | | | Predecessor |
| | June 30, 2021 | | | December 31, 2020 |
| Drilling equipment and facilities | | $ | 1,449,585 | | | | $ | 4,476,960 | |
| Construction in progress | | 120,689 | | | | 99,812 | |
| Other | | 10,322 | | | | 200,925 | |
| Property and equipment, at cost | | $ | 1,580,596 | | | | $ | 4,777,697 | |
During the period from February 6 through June 30, 2021 and the period from January 1 through February 5, 2021, we recognized 0 impairment charges to our long-lived assets. During the six months ended June 30, 2020, we recognized a net gainnon-cash loss on impairment of approximately $6.7 million.$1.1 billion, related to our long-lived assets. See “Note 11— Loss on Impairment” for additional information.
In March 2016, we commenced cash tender offers
Note 8— Debt
Post-emergence Debt
Senior Secured Revolving Credit Facility
On the Effective Date, Finco and Noble International Finance Company (“NIFCO”) entered into the Revolving Credit Agreement providing for our 4.90% Senior Notes due 2020,the $675.0 million Revolving Credit Facility and canceled all debt that existed immediately prior to the Effective Date. The Revolving Credit Facility matures on July 31, 2025. Subject to the satisfaction of which $500.0certain conditions, Finco may from time to time designate one or more of Finco’s other wholly-owned subsidiaries as additional borrowers under the Revolving Credit Agreement (collectively with Finco and NIFCO, the “Borrowers”). As of the Effective Date, $177.5 million principal amount wasof loans were outstanding, and our 4.625% Senior Notes due 2021, of which $400.0 million principal amount was outstanding. On April 1, 2016, we purchased $36.0$8.8 million of these Senior Notes for $24.0letters of credit were issued, under the Revolving Credit Facility. As of June 30, 2021, we had $190.0 million plus accrued interest, usingof loans outstanding and $9.7 million of letters of credit issued under the Revolving Credit Facility and an additional $11.8 million in letters of credit and surety bonds issued under bilateral arrangements.
All obligations of the Borrowers under the Revolving Credit Agreement, certain cash management obligations and certain swap obligations are unconditionally guaranteed, on hand. In April 2016, as a resultjoint and several basis, by Finco and certain of this transaction, we recognizedits direct and indirect subsidiaries (collectively with the Borrowers, the “Credit Parties”), including a net gainguarantee by each Borrower of approximately $11.1 million.
In March 2017, we repaid our $300.0 million 2.50% Senior Notes using cashthe obligations of each other Borrower under the Revolving Credit Agreement. All such obligations, including the guarantees of the Revolving Credit Facility, are secured by senior priority liens on hand.
Covenantssubstantially all assets of, and the equity interests in, each Credit Party, subject to certain exceptions and limitations described in the Revolving Credit Agreement. Neither Pacific Drilling nor any of its subsidiaries is a subsidiary guarantor of the Revolving Credit Facility, and none of their assets secure the Revolving Credit Facility.
The loans outstanding under the Revolving Credit Facility bear interest at a rate per annum equal to the applicable margin plus, at Finco’s option, either: (i) the reserve-adjusted LIBOR or (ii) a base rate, determined as the greatest of (x) the prime loan rate as published in the Wall Street Journal, (y) the federal funds effective rate plus ½ of 1%, and (z) the reserve-adjusted one-month LIBOR plus 1%. The applicable margin is initially 4.75% per annum for LIBOR loans and 3.75% per annum for base rate loans and will be increased by 50 basis points after July 31, 2024, and may be increased by an additional 50 basis points under certain conditions described in the Revolving Credit Agreement.
The Borrowers are required to pay customary quarterly commitment fees and letter of credit facilityand fronting fees.
NOBLE CORPORATION AND SUBSIDIARIES
NOBLE FINANCE COMPANY AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unless otherwise indicated, dollar and share amounts in tables are in thousands, except per share data)
Availability of borrowings under the Revolving Credit Agreement is guaranteed by NHUSsubject to the satisfaction of certain conditions, including restrictions on borrowings if, after giving effect to any such borrowings and NHIL. The credit facility contains a covenant that limits our ratiothe application of debt to total tangible capitalization, asthe proceeds thereof, (i) the aggregate amount of Available Cash (as defined in the credit facility,Revolving Credit Agreement) would exceed $100.0 million, (ii) the Consolidated First Lien Net Leverage Ratio (as defined in the Revolving Credit Agreement) would be greater than 5.50 to 0.60. At September 30, 2017, our ratio of debt to total tangible capitalization was approximately 0.41. We were in compliance with all covenants1.00 and the aggregate principal amount outstanding under the credit facility Revolving Credit Facility would exceed $610.0 million, or (iii) the Asset Coverage Ratio (as described below) would be less than 2.00 to 1.00.
Mandatory prepayments and, under certain circumstances, commitment reductions are required under the Revolving Credit Facility in connection with (i) certain asset sales, asset swaps and events of loss (subject to reinvestment rights if no event of default exists) and (ii) certain debt issuances. Available Cash in excess of $150.0 million is also required to be applied periodically to prepay loans (without a commitment reduction). The loans under the Revolving Credit Facility may be voluntarily prepaid, and the commitments thereunder voluntarily terminated or reduced, by the Borrowers at any time without premium or penalty, other than customary breakage costs.
The Revolving Credit Agreement obligates Finco and its restricted subsidiaries to comply with the following financial maintenance covenants:
•as of the last day of each fiscal quarter in 2021, Adjusted EBITDA (as defined in the Revolving Credit Agreement) is not permitted to be lower than $25.0 million for the four fiscal quarter periods ending on each of September 30, 2017.2021 and December 31, 2021;
•as of the last day of each fiscal quarter ending on or after March 31, 2022, the ratio of Adjusted EBITDA to Cash Interest Expense (as defined in the Revolving Credit Agreement) is not permitted to be less than (i) 2.00 to 1.00 for each four fiscal quarter period ending on or after March 31, 2022 until June 30, 2024, and (ii) 2.25 to 1.00 for each four fiscal quarter period ending thereafter; and
•for each fiscal quarter ending on or after June 30, 2021, the ratio of (x) Asset Coverage Aggregate Rig Value (as defined in the Revolving Credit Agreement) to (y) the aggregate principal amount of loans and letters of credit outstanding under the Revolving Credit Facility (the “Asset Coverage Ratio”) as of the last day of any such fiscal quarter is not permitted to be less than 2.00 to 1.00.
The Revolving Credit Facility contains affirmative and negative covenants, representations and warranties and events of default that the Company considers customary for facilities of this type.
Second Lien Notes Indenture
On the Effective Date, pursuant to the Backstop Commitment Agreement and in accordance with the Plan, Noble and Finco consummated the Rights Offering of Second Lien Notes and associated Ordinary Shares at an aggregate subscription price of $200.0 million.
An aggregate principal amount of $216.0 million of Second Lien Notes was issued in the Rights Offering, which includes the aggregate subscription price of $200.0 million plus a backstop fee of $16.0 million which was paid in kind. The Second Lien Notes mature on February 15, 2028. The Second Lien Notes are fully and unconditionally guaranteed, jointly and severally, on a senior secured second-priority basis, by the direct and indirect subsidiaries of Finco that are Credit Parties under the Revolving Credit Facility. Neither Pacific Drilling nor any of its subsidiaries is a subsidiary guarantor of the Second Lien Notes, and none of their assets secure the Second Lien Notes.
The Second Lien Notes and such guarantees are secured by senior priority liens on the assets subject to liens securing the Revolving Credit Facility, including the equity interests in Finco and each guarantor of the Second Lien Notes, all of the rigs owned by the Company as of the Effective Date or acquired thereafter, certain assets related thereto, and substantially all other assets of Finco and such guarantors, in each case, subject to certain exceptions and limitations. Such collateral does not include any assets of, or equity interests in, Pacific Drilling or any of its subsidiaries.
Interest on the Second Lien Notes accrues, at Finco’s option, at a rate of: (i) 11% per annum, payable in cash; (ii) 13% per annum, with 50% of such interest to be payable in cash and 50% of such interest to be payable by issuing additional Second Lien Notes (“PIK Notes”); or (iii) 15% per annum, with the entirety of such interest to be payable by issuing PIK Notes. Finco shall pay interest semi-annually in arrears on February 15 and August 15 of each year, commencing August 15, 2021. For the period ended June 30, 2021, we have elected to pay the next interest payment in cash and accrued interest at a rate of 11%.
On or after February 15, 2024, Finco may redeem all or part of the Second Lien Notes at fixed redemption prices (expressed as percentages of the principal amount), plus accrued and unpaid interest, if any, to, but excluding, the redemption date. Finco may also redeem the Second Lien Notes, in whole or in part, at any time and from time to time on or before February 14, 2024 at a redemption price equal to 106% of the principal amount plus accrued and unpaid interest, if any, to, but excluding, the applicable redemption date, plus a “make-whole”
NOBLE CORPORATION AND SUBSIDIARIES
NOBLE FINANCE COMPANY AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unless otherwise indicated, dollar and share amounts in tables are in thousands, except per share data)
premium. Notwithstanding the foregoing, if a Change of Control (as defined in the Second Lien Notes Indenture) occurs prior to (but not including) February 15, 2024, then, within 120 days of such Change of Control, Finco may elect to purchase all remaining outstanding Second Lien Notes at a redemption price equal to 106% of the principal amount, plus accrued and unpaid interest, if any, to, but excluding, the applicable redemption date.
The Second Lien Notes contain covenants and events of default that the Company considers customary for notes of this type.
Pre-emergence Debt
2017 Credit Facility
In additionDecember 2017, Noble Cayman Limited, a Cayman Islands company and a wholly-owned indirect subsidiary of Finco; Noble International Finance Company, a Cayman Islands company and a wholly-owned indirect subsidiary of Finco; and Noble Holding UK Limited, a company incorporated under the laws of England and Wales and a wholly-owned direct subsidiary of Legacy Noble (“NHUK”), as parent guarantor, entered into a senior unsecured credit agreement (as amended, the “2017 Credit Facility”). In July 2019, we executed a first amendment to our 2017 Credit Facility, which, among other things, reduced the maximum aggregate amount of commitments thereunder from $1.5 billion to $1.3 billion.
Prior to the covenants fromfiling of the Chapter 11 Cases, the 2017 Credit Facility was scheduled to mature in January 2023. Borrowings were available for working capital and other general corporate purposes. The 2017 Credit Facility provided for a letter of credit facility noted above,sub-facility in the amount of $15.0 million, with the ability to increase such amount up to $500.0 million with the approval of the lenders. The 2017 Credit Facility had provisions that varied the applicable interest rates for borrowings based upon our debt ratings. Borrowings under the 2017 Credit Facility bore interest at LIBOR plus an applicable margin. NHUK guaranteed the obligations of the borrowers under the 2017 Credit Facility. In addition, certain indirect subsidiaries of Legacy Noble that owned rigs were guarantors under the 2017 Credit Facility.
The filing of the Chapter 11 Cases constituted events of default that accelerated the Company’s obligations under the indentures governing our outstanding senior unsecured notes contain covenants that place restrictions on certain merger and consolidation transactions, unless we areunder our 2017 Credit Facility. In addition, the surviving entity orunpaid principal and interest due under our indentures and the other party assumes2017 Credit Facility became immediately due and payable. However, any efforts to enforce such payment obligations with respect to our senior notes and 2017 Credit Facility were automatically stayed as a result of the filing of the Chapter 11 Cases, and the creditors’ rights of enforcement were subject to the applicable provisions of the Bankruptcy Code. See “Note 1— Organization and Basis of Presentation” for additional information.
The Company had $545.0 million outstanding under the 2017 Credit Facility prior to the Effective Date. On the Effective Date, all outstanding obligations under the indenture,2017 Credit Facility were terminated and the holders of claims under the 2017 Credit Facility had such obligations repaid using cash on hand, repaid using proceeds from the ability to sellRights Offering, or transferrefinanced through the Revolving Credit Facility. On the Effective Date, all or substantially all of our assets. In addition, there are restrictions on incurring or assuming certain liens and on entering into salesecurity interests granted to secure such obligations were terminated and lease-back transactions. Atare of no further force and effect.
Seller Loans
In February 2019, we purchased the Noble Joe Knight for $83.8 million with a $53.6 million seller-financed secured loan (the “2019 Seller Loan”). In September 30, 2017,2018, we were in compliancepurchased the Noble Johnny Whitstine for $93.8 million with all of our debt covenants. We continually monitor compliancea $60.0 million seller-financed secured loan (the “2018 Seller Loan” and, together with the 2019 Seller Loan, the “Seller Loans”).
In April 2020, the Company agreed with the lender under the Seller Loans to pay off 85% of the outstanding principal amount of the Seller Loans in exchange for a discount to the outstanding loan balance. On April 20, 2020, the Company made a payment of $48.1 million under the 2019 Seller Loan and $53.6 million under the 2018 Seller Loan, and, upon the lender’s receipt of such payment, interest ceased accruing, and the financial covenants set forth in the agreements relating to the Seller Loans ceased to apply. On July 20, 2020, at the conclusion of the 90-day period following the payment date, all outstanding amounts were reduced to 0, all security was released, and the Seller Loans were terminated.
Senior Notes
On the Effective Date, in accordance with the Plan, all outstanding obligations under our senior notes were cancelled and expectthe indentures governing such obligations were cancelled, except to remainthe limited extent expressly set forth in compliance during the remainder of 2017.Plan.See “Note 2— Chapter 11 Emergence” for additional information.
NOBLE CORPORATION AND SUBSIDIARIES
NOBLE FINANCE COMPANY AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unless otherwise indicated, dollar and share amounts in tables are in thousands, except per share data)
Fair Value of Debt
Fair value represents the amount at which an instrument could be exchanged in a current transaction between willing parties. The estimated fair value of our senior notesdebt instruments was based on the quoted market prices for similar issues or on the current rates offered to us for debt of similar remaining maturities (Level 2 measurement). The carrying amount of the Revolving Credit Facility approximates fair value as the interest rate is variable and reflective of market rates. All remaining fair value disclosures are presented in Note 10—“Note 14— Fair Value of Financial Instruments.”
The following table presents the carrying value, net of unamortized debt issuance costs and discounts or premiums, and the estimated fair value of our total debt, not including the effect of unamortized debt issuance costs, asrespectively:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Successor | | | Predecessor |
| | June 30, 2021 | | | December 31, 2020 |
| | Carrying Value | | Estimated Fair Value | | | Carrying Value | | Estimated Fair Value |
| Senior secured notes: | | | | | | | | | |
| 11.000% Second Lien Notes due February 2028 | | $ | 216,000 | | | $ | 232,260 | | | | $ | 0 | | | $ | 0 | |
| Senior unsecured notes: | | | | | | | | | |
| 4.900% Senior Notes due August 2020 | | 0 | | | 0 | | | | 62,535 | | | 1,366 | |
| 4.625% Senior Notes due March 2021 | | 0 | | | 0 | | | | 79,936 | | | 1,596 | |
| 3.950% Senior Notes due March 2022 | | 0 | | | 0 | | | | 21,213 | | | 354 | |
| 7.750% Senior Notes due January 2024 | | 0 | | | 0 | | | | 397,025 | | | 7,925 | |
| 7.950% Senior Notes due April 2025 | | 0 | | | 0 | | | | 450,000 | | | 8,348 | |
| 7.875% Senior Notes due February 2026 | | 0 | | | 0 | | | | 750,000 | | | 301,935 | |
| 6.200% Senior Notes due August 2040 | | 0 | | | 0 | | | | 393,596 | | | 7,966 | |
| 6.050% Senior Notes due March 2041 | | 0 | | | 0 | | | | 395,002 | | | 7,327 | |
| 5.250% Senior Notes due March 2042 | | 0 | | | 0 | | | | 483,619 | | | 9,701 | |
| 8.950% Senior Notes due April 2045 | | 0 | | | 0 | | | | 400,000 | | | 7,420 | |
| Credit facility: | | | | | | | | | |
| Senior Secured Revolving Credit Facility matures July 2025 | | 190,000 | | | 190,000 | | | | 0 | | | 0 | |
| 2017 Credit Facility matures January 2023 | | 0 | | | 0 | | | | 545,000 | | | 545,000 | |
| | | | | | | | | |
| | | | | | | | | |
| Total debt | | 406,000 | | | 422,260 | | | | 3,977,926 | | | 898,938 | |
| | | | | | | | | |
| Less: Current maturities of long-term debt | | 0 | | | 0 | | | | 0 | | | 0 | |
| Long-term debt | | $ | 406,000 | | | $ | 422,260 | | | | $ | 0 | | | $ | 0 | |
At June 30, 2021, there were 0 unamortized debt issuance costs and discounts or premiums associated with the Second Lien Notes, and $11.8 million of September 30, 2017 andunamortized debt issuance costs associated with the Revolving Credit Facility. At December 31, 2016, respectively:2020, all unamortized debt issuance costs and discounts or premiums associated with Predecessor debt had been written off.
As discussed in “Note 1— Organization and Basis of Presentation,” from the Petition Date until the Effective Date, the Company operated as a debtor-in-possession under the jurisdiction of the Bankruptcy Court and in accordance with provisions of the Bankruptcy Code. Accordingly, all of our long-term debt obligations were presented as “Liabilities subject to compromise” on our Condensed Consolidated Balance Sheet at December 31, 2020.
|
| | | | | | | | | | | | | | | | |
| | | September 30, 2017 | | December 31, 2016 |
| | | Carrying Value | | Estimated Fair Value | | Carrying Value | | Estimated Fair Value |
| Senior unsecured notes: | | | | | | | | |
| 2.50% Senior Notes due March 2017 | | $ | — |
| | $ | — |
| | $ | 299,992 |
| | $ | 299,128 |
|
| 5.75% Senior Notes due March 2018 | | 249,911 |
| | 252,638 |
| | 249,771 |
| | 249,808 |
|
| 7.50% Senior Notes due March 2019 | | 201,695 |
| | 208,347 |
| | 201,695 |
| | 209,524 |
|
| 4.90% Senior Notes due August 2020 | | 167,612 |
| | 164,664 |
| | 167,576 |
| | 167,329 |
|
| 4.625% Senior Notes due March 2021 | | 208,561 |
| | 194,303 |
| | 208,538 |
| | 196,416 |
|
| 3.95% Senior Notes due March 2022 | | 125,510 |
| | 104,816 |
| | 125,488 |
| | 112,791 |
|
| 7.75% Senior Notes due January 2024 | | 981,738 |
| | 890,160 |
| | 980,117 |
| | 945,317 |
|
| 7.70% Senior Notes due April 2025 | | 448,983 |
| | 386,802 |
| | 448,909 |
| | 423,267 |
|
| 6.20% Senior Notes due August 2040 | | 399,899 |
| | 278,956 |
| | 399,898 |
| | 280,221 |
|
| 6.05% Senior Notes due March 2041 | | 397,790 |
| | 274,376 |
| | 397,758 |
| | 273,854 |
|
| 5.25% Senior Notes due March 2042 | | 498,393 |
| | 329,460 |
| | 498,369 |
| | 325,814 |
|
| 8.70% Senior Notes due April 2045 | | 394,647 |
| | 325,600 |
| | 394,613 |
| | 328,608 |
|
| Total debt | | $ | 4,074,739 |
| | $ | 3,410,122 |
| | $ | 4,372,724 |
| | $ | 3,812,077 |
|
34
NOBLE CORPORATION PLC AND SUBSIDIARIES
NOBLE CORPORATIONFINANCE COMPANY AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unless otherwise indicated, dollar and share amounts in tables are in thousands, except per share data)
Note 9— Accumulated Other Comprehensive Income (Loss)
The following table presents the changes in the accumulated balances for each component of “Accumulated other comprehensive income (loss)” (“AOCI”) for the period from February 6 through June 30, 2021, the period from January 1 through February 5, 2021 and the three and six months ended June 30, 2020. All amounts within the table are shown net of tax.
| | | | | | | | | | | | | | | | | | | | |
| | Defined Benefit Pension Items (1) | | Foreign Currency Items | | Total |
| Balance at 12/31/2019 (Predecessor) | | $ | (40,635) | | | $ | (17,754) | | | $ | (58,389) | |
| Activity during period: | | | | | | |
| Other comprehensive loss before reclassifications | | 0 | | | (2,136) | | | (2,136) | |
| Amounts reclassified from AOCI | | 568 | | | 0 | | | 568 | |
| Net other comprehensive income (loss) | | 568 | | | (2,136) | | | (1,568) | |
| Balance at 3/31/2020 (Predecessor) | | $ | (40,067) | | | $ | (19,890) | | | $ | (59,957) | |
| Activity during period: | | | | | | |
| Other comprehensive loss before reclassifications | | 0 | | | (539) | | | (539) | |
| Amounts reclassified from AOCI | | 568 | | | 0 | | | 568 | |
| Net other comprehensive income (loss) | | 568 | | | (539) | | | 29 | |
| Balance at 6/30/2020 (Predecessor) | | $ | (39,499) | | | $ | (20,429) | | | $ | (59,928) | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| Balance at 12/31/2020 (Predecessor) | | $ | (39,737) | | | $ | (18,275) | | | $ | (58,012) | |
| Activity during period: | | | | | | |
| Other comprehensive loss before reclassifications | | 0 | | | (116) | | | (116) | |
| Amounts reclassified from AOCI | | 224 | | | 0 | | | 224 | |
| Net other comprehensive income (loss) | | 224 | | | (116) | | | 108 | |
| Cancellation of Predecessor equity | | 39,513 | | | 18,391 | | | 57,904 | |
| Balance at 2/5/2021 (Predecessor) | | $ | 0 | | | $ | 0 | | | $ | 0 | |
| | | | | | |
| | | | | | |
| Balance at 2/6/2021 (Successor) | | $ | 0 | | | $ | 0 | | | $ | 0 | |
| Activity during period: | | | | | | |
| Other comprehensive income before reclassifications | | 0 | | | 0 | | | 0 | |
| Amounts reclassified from AOCI | | 0 | | | 0 | | | 0 | |
| Net other comprehensive income | | 0 | | | 0 | | | 0 | |
| Balance at 3/31/2021 (Successor) | | $ | 0 | | | $ | 0 | | | $ | 0 | |
| Activity during period: | | | | | | |
| Other comprehensive income before reclassifications | | 168 | | | 0 | | | 168 | |
| Amounts reclassified from AOCI | | 0 | | | 0 | | | 0 | |
| Net other comprehensive income | | 168 | | | 0 | | | 168 | |
| Balance at 6/30/2021 (Successor) | | $ | 168 | | | $ | 0 | | | $ | 168 | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
(1)Defined benefit pension items relate to actuarial changes, the amortization of prior service costs and the unrealized gain (loss) on foreign exchange on pension assets. Reclassifications from AOCI are recognized as expense on our Condensed Consolidated Statements of Operations through “Other income (expense).” See “Note 13— Employee Benefit Plans” for additional information.
NOBLE CORPORATION AND SUBSIDIARIES
NOBLE FINANCE COMPANY AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unless otherwise indicated, dollar and share amounts in tables are in thousands, except per share data)
Note 7—10— Revenue and Customers
Contract Balances
Accounts receivable are recognized when the right to consideration becomes unconditional based upon contractual billing schedules. Payment terms on invoiced amounts typically range from 30 to 60 days. Current contract asset and liability balances are included in “Prepaid expenses and other current assets” and “Other current liabilities,” respectively, and noncurrent contract assets and liabilities are included in “Other assets” and “Other liabilities,” respectively, on our Condensed Consolidated Balance Sheets.
The following table provides information about contract assets and contract liabilities from contracts with customers:
| | | | | | | | | | | | | | | | | |
| | Successor | | | Predecessor |
| | June 30, 2021 | | | December 31, 2020 |
| Current contract assets | | $ | 3,535 | | | | $ | 10,687 | |
| Noncurrent contract assets | | 0 | | | | 3,174 | |
| Total contract assets | | 3,535 | | | | 13,861 | |
| | | | | |
| Current contract liabilities (deferred revenue) | | (13,062) | | | | (34,990) | |
| Noncurrent contract liabilities (deferred revenue) | | (5,799) | | | | (24,896) | |
| Total contract liabilities | | $ | (18,861) | | | | $ | (59,886) | |
NOBLE CORPORATION AND SUBSIDIARIES
NOBLE FINANCE COMPANY AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unless otherwise indicated, dollar and share amounts in tables are in thousands, except per share data)
Significant changes in the remaining performance obligation contract assets and the contract liabilities balances for the six months ended June 30, 2021 and 2020 are as follows:
| | | | | | | | | | | | | | |
| | Contract Assets | | Contract Liabilities |
| Net balance at 12/31/2019 (Predecessor) | | $ | 30,800 | | | $ | (65,055) | |
| | | | |
| Amortization of deferred costs | | (16,253) | | | — | |
| Additions to deferred costs | | 4,796 | | | — | |
| Amortization of deferred revenue | | — | | | 32,071 | |
| Additions to deferred revenue | | — | | | (30,392) | |
| Total | | (11,457) | | | 1,679 | |
| | | | |
| Net balance at 6/30/2020 (Predecessor) | | $ | 19,343 | | | $ | (63,376) | |
| | | | |
| Net balance at 12/31/2020 (Predecessor) | | $ | 13,861 | | | $ | (59,886) | |
| | | | |
| Amortization of deferred costs | | (1,607) | | | — | |
| Additions to deferred costs | | 432 | | | — | |
| Amortization of deferred revenue | | — | | | 4,142 | |
| Additions to deferred revenue | | — | | | (25,479) | |
| Fresh start accounting revaluation | | (12,686) | | | 72,936 | |
| Total | | $ | (13,861) | | | $ | 51,599 | |
| | | | |
| Net balance at 2/5/21 (Predecessor) | | $ | 0 | | | $ | (8,287) | |
| | | | |
| | | | |
| Net balance at 2/6/21 (Successor) | | $ | 0 | | | $ | (8,287) | |
| | | | |
| Amortization of deferred costs | | (161) | | | — | |
| Additions to deferred costs | | 3,696 | | | 0 | |
| Amortization of deferred revenue | | — | | | 975 | |
| Additions to deferred revenue | | — | | | (11,549) | |
| Total | | 3,535 | | | (10,574) | |
| | | | |
| Net balance at 6/30/2021 (Successor) | | $ | 3,535 | | | $ | (18,861) | |
Customer Contract Intangible Assets
Upon emergence from the Chapter 11 Cases, the Company recognized a fair value adjustment of $113.4 million related to intangible assets for certain favorable customer contracts. These intangible assets will be amortized as a reduction of contract drilling services revenue from the Effective Date through the remainder of the contracts, approximately 18 months and 32 months, respectively. As of June 30, 2021, the net carrying amount was $90.7 million, $113.4 million gross less $22.7 million accumulated amortization. The expected remaining amortization is as follows: $28.8 million for the six-month period ending December 31, 2021 and $43.5 million and $18.4 million for the years ending December 31, 2022 and 2023, respectively. We assess the recoverability of the unamortized balance when indicators of impairment are present. Should the review indicate that the carrying value is not fully recoverable, the portion not fully recoverable would be recognized as an impairment loss.
NOBLE CORPORATION AND SUBSIDIARIES
NOBLE FINANCE COMPANY AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unless otherwise indicated, dollar and share amounts in tables are in thousands, except per share data)
Transaction Price Allocated to the Remaining Performance Obligations
The following table reflects revenue expected to be recognized in the future related to unsatisfied performance obligations, by rig type, as of June 30, 2021:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | For the Years Ended December 31, |
| | 2021 (1) | | 2022 | | 2023 | | 2024 | | 2025 and beyond | | Total |
| Floaters | | $ | 6,573 | | | $ | 12,182 | | | $ | 106 | | | $ | 0 | | | $ | 0 | | | $ | 18,861 | |
| Jackups | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | |
| Total | | $ | 6,573 | | | $ | 12,182 | | | $ | 106 | | | $ | 0 | | | $ | 0 | | | $ | 18,861 | |
(1) Represents a six-month period beginning July 1, 2021.
The revenue included above consists of expected mobilization, demobilization, and upgrade revenue for unsatisfied 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 June 30, 2021. The actual timing of recognition of such amounts may vary due to factors outside of our control. We have taken the optional exemption, permitted by accounting standards, to exclude disclosure of the estimated transaction price related to the variable portion of unsatisfied performance obligations at the end of the reporting period, as our transaction price is based on a single performance obligation consisting of a series of distinct hourly, or more frequent, periods, the variability of which will be resolved at the time of the future services.
Disaggregation of Revenue
The following table provides information about contract drilling revenue by rig types:
| | | | | | | | | | | | | | | | | |
| | Successor | | | Predecessor |
| | Three Months Ended | | | Three Months Ended |
| | June 30, 2021 | | | June 30, 2020 |
| | |
| | | | | |
| Floaters | | $ | 135,273 | | | | $ | 114,683 | |
| Jackups | | 64,624 | | | | 105,458 | |
| Total | | $ | 199,897 | | | | $ | 220,141 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| | Successor | | | Predecessor |
| | Period From | | | Period From | | |
| | February 6, 2021 | | | January 1, 2021 | | |
| | through | | | through | | Six Months Ended |
| | June 30, 2021 | | | February 5, 2021 | | June 30, 2020 |
| Floaters | | $ | 191,321 | | | | $ | 50,057 | | | $ | 240,018 | |
| Jackups | | 93,205 | | | | 23,994 | | | 247,487 | |
| Total | | $ | 284,526 | | | | $ | 74,051 | | | $ | 487,505 | |
Note 11— Loss on Impairment
Asset Impairments
We evaluate our property and equipment for impairment whenever there are changes in facts that suggest that the value of the asset is not recoverable. During the period from February 6 through June 30, 2021 and the period from January 1 through February 5, 2021, 0 impairment was recognized on our fleet.
In connection with the preparation of our financial statements for the first quarter of 2020, we conducted a review of our fleet to determine recoverability and recognized approximately $1.1 billion in impairment charges for 4 floaters, and $5.5 million ofimpairment charges related to certain capital spare equipment. For our impaired floaters, we estimated the fair value by applying the income valuation
NOBLE CORPORATION AND SUBSIDIARIES
NOBLE FINANCE COMPANY AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unless otherwise indicated, dollar and share amounts in tables are in thousands, except per share data)
approach utilizing significant unobservable inputs, representative of a Level 3 fair value measurement. The review included an assessment of certain assumptions, including future marketability of each unit in light of the then-current market conditions and their current technical specifications. Assumptions used in our assessment included, but were not limited to, timing of future contract awards and expected operating dayrates, operating costs, utilization rates, discount rates, capital expenditures, reactivation costs, estimated economic useful lives and, in certain cases, our belief that a drilling unit is no longer marketable and is unlikely to return to service in the near to medium term.
The impact of the current global economic turmoil continues to evolve and its duration and ultimate disruption to our customers’ and our business cannot be estimated at this time. We could recognize further impairment charges should such disruption continue. If we experience prolonged unfavorable changes to current market conditions, reactivation costs or dayrates or if we are unable to secure new or extended contracts for our active rigs at favorable rates, it is reasonably possible that the estimate of undiscounted cash flows may change in the near term, resulting in the need to write down the affected assets to their corresponding estimated fair values.
Note 12— Income Taxes
As described in “Note 2— Chapter 11 Emergence,” in accordance with the Plan, the Predecessor’s Legacy Notes were cancelled and exchanged for Successor’s Ordinary Shares and Warrants. The cancellation of indebtedness income resulting from such restructuring transactions has significantly reduced the Company’s US tax attributes, including but not limited to NOL carryforwards. As a result of the emergence from bankruptcy, on the Effective Date, the Company experienced an ownership change under Section 382 of the Internal Revenue Code of 1986, as amended (the “Code”), which is anticipated to subject certain remaining tax attributes to an annual limitation under Section 382 of the Code.
On the Effective Date, the Company had net deferred tax liabilities in total of $21.5 million inclusive of a valuation allowance of $4.7 million. Because of the impact the cumulative operating losses have on the determination of the recoverability of deferred tax assets through future earnings and the negative evidence associated with the bankruptcy reorganization, the Company assessed the realizability of its deferred tax assets based on the future reversals of existing deferred tax liabilities. Accordingly, the Company established a new valuation allowance of $4.7 million for a portion of its deferred tax assets.
At SeptemberJune 30, 2017,2021, the Company had a deferred tax asset of $8.8 million net of valuation allowance. Additionally, the Company also had deferred tax liabilities of $14.6 million inclusive of a valuation allowance of $5.0 million.
At June 30, 2021, the reserves for uncertain tax positions totaled $192.3$53.2 million (net of related tax benefits of $1.0$0.3 million). If the September 30, 2017 reserves are not realized, the provision for income taxes would be reduced by $186.8 million. At December 31, 2016,2020, the reserves for uncertain tax positions totaled $172.5$42.5 million (net of related tax benefits of $1.0$0.4 million).
It is reasonably possible that our existing liabilities related to our reserve for uncertain tax positions may fluctuate in the next 12 months primarily due to the completion of open audits or the expiration of statutes of limitation. However, we cannot reasonably estimate a range of changes in our existing liabilities due to various uncertainties, such as the unresolved nature of various audits.
During the nine monthsperiod ended September 30, 2017,on February 5, 2021, our income tax provision included a non-cash, discrete itemtax benefit of $260.7 million as the result of an internal tax restructuring, which was implemented to reduce costs associated with the ownership of multiple legal entities, simplify the overall legal entity structure, ease deployment of cash throughout the business and consolidate operations into one centralized group of entities.
As of September 30, 2017, we recorded deferred charges of $147.5$1.7 million related to non-US reserve release, tax expense of $2.5 million related to fresh start and reorganization adjustments, and other recurring tax expenses of approximately $2.6 million.
On the deferral ofEffective Date, our income tax expense on intercompany asset transfers asprovision included tax expenses of $2.5 million associated with reorganization and fresh start adjustments.
As a result of our internalthe Merger, the Company recorded a net decrease of $18.4 million to Pacific Drilling’s historical tax restructuring. The deferred charges are included in “Other assets” on the accompanying Condensed Consolidated Balance Sheetreserve balance and are amortized as a componentnet adjustment of income$2.9 million to other tax expense over the remaining life of the underlying assets.
Note 8— Employee Benefit Plans
Pension costs include the following components for the three and nine months ended September 30, 2017 and 2016:
|
| | | | | | | | | | | | | | | | |
| | | Three Months Ended September 30, |
| | | 2017 | | 2016 |
| | | Non-U.S. | | U.S. | | Non-U.S. | | U.S. |
| Service cost | | $ | — |
| | $ | — |
| | $ | 763 |
| | $ | 1,662 |
|
| Interest cost | | 506 |
| | 2,148 |
| | 589 |
| | 2,389 |
|
| Return on plan assets | | (739 | ) | | (2,941 | ) | | (828 | ) | | (3,097 | ) |
| Amortization of prior service cost | | — |
| | — |
| | 25 |
| | 30 |
|
| Recognized net actuarial loss | | 264 |
| | 366 |
| | 35 |
| | 1,099 |
|
| Settlement and curtailment gains | | (620 | ) | | — |
| | — |
| | — |
|
| Net pension benefit cost (gain) | | $ | (589 | ) | | $ | (427 | ) | | $ | 584 |
| | $ | 2,083 |
|
|
| | | | | | | | | | | | | | | | |
| | | Nine Months Ended September 30, |
| | | 2017 | | 2016 |
| | | Non-U.S. | | U.S. | | Non-U.S. | | U.S. |
| Service cost | | $ | — |
| | $ | — |
| | $ | 2,337 |
| | $ | 4,986 |
|
| Interest cost | | 1,476 |
| | 6,445 |
| | 1,864 |
| | 7,167 |
|
| Return on plan assets | | (2,161 | ) | | (8,823 | ) | | (2,627 | ) | | (9,291 | ) |
| Amortization of prior service cost | | — |
| | — |
| | 78 |
| | 88 |
|
| Recognized net actuarial loss | | 775 |
| | 1,098 |
| | 110 |
| | 3,299 |
|
| Settlement and curtailment gains | | (620 | ) | | — |
| | — |
| | — |
|
| Net pension benefit cost (gain) | | $ | (530 | ) | | $ | (1,280 | ) | | $ | 1,762 |
| | $ | 6,249 |
|
During the threeperiod from February 6, 2021 to June 30, 2021, our tax provision included tax benefits of $21.9 million related to US and nine months ended September 30, 2017, we made contributionsnon-US reserve releases, $12.6 million related to our pension plansa US tax refund, and $1.2 million related primarily to deferred tax adjustments. Such tax benefits were partially offset by tax expenses of approximately $0.4$8.2 million related to various recurring items and $0.6$18.6 million which satisfied our obligations under our defined benefit plan for the North Sea region.related to non-US tax reserves.
During the fourth quarter of 2016, we approved amendments, effective as of December 31, 2016, to our non-U.S. and U.S. defined benefit plans. With these amendments, employees and alternate payees will accrue no future benefits under the plans after December 31, 2016. However, these amendments will not affect any benefits earned through that date.
NOBLE CORPORATION PLC AND SUBSIDIARIES
NOBLE CORPORATIONFINANCE COMPANY AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unless otherwise indicated, dollar and share amounts in tables are in thousands, except per share data)
Note 13— Employee Benefit Plans
Note 9— Derivative Instruments and Hedging Activities
We periodically enter into derivative instruments to manage our exposure to fluctuations in interest rates and foreign currency exchange rates. We have documented policies and procedures to monitor and controlPension costs include the use of derivative instruments. We do not engage in derivative transactions for speculative following components for trading purposes, nor are we a party to leveraged derivatives.
For foreign currency forward contracts, hedge effectiveness is evaluated at inception based on the matching of critical terms between derivative contracts and the hedged item. Any change in fair value resulting from ineffectiveness is recognized immediately in earnings.
On May 10, 2016, Freeport-McMoRan Inc. (“Freeport”), Freeport-McMoRan Oil & Gas LLC and one of our subsidiaries entered into an agreement terminating the contracts on the Noble Sam Croft and the Noble Tom Madden (“FCX Settlement”), which were scheduled to end in July 2017 and November 2017, respectively. The FCX Settlement included two contingent payments, which are further discussed below. We accounted for these contingent payments as derivative instruments that did not qualify under the Financial Accounting Standards Board (“FASB”) standards for hedge accounting treatment, and therefore, changes in fair values were recognized as a loss in the accompanying Condensed Consolidated Statements of Operations.
Cash Flow Hedges
Several of our regional shorebases, including our North Sea operations, have a significant amount of their cash operating expenses payable in local currencies. To limit the potential risk of currency fluctuations, we periodically enter into forward contracts, which settle monthly in the operations’ respective local currencies. All of these contracts have a maturity of less than 12 months. The forward contract settlements in the remainder of 2017 represent approximately 70 percent of these forecasted local currency requirements. The notional amount of the forward contracts outstanding, expressed in U.S. Dollars, was approximately $10.1 million at September 30, 2017. Total unrealized gains related to these forward contracts were approximately $0.7 million as of September 30, 2017 and were recorded as part of “Accumulated other comprehensive income (loss)” (“AOCL”).
FCX Settlement
Pursuant to the FCX Settlement, Noble could have received contingent payments from the FCX Settlement on September 30, 2017, depending on the average price of oil over a 12-month period from
June 30, 2016February 6 through June 30,
2017. The average price of oil was calculated using the daily closing price of West Texas Intermediate crude oil (“WTI”) (CL1) on the New York Mercantile Exchange for2021, the period
offrom January 1 through February 5, 2021, the three months ended June 30,
20162021 and the three and six months ended June 30, 2020: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Successor | | | Predecessor |
| | Three Months Ended | | | Three Months Ended |
| | June 30, 2021 | | | June 30, 2020 |
| | Non-US | | US | | | Non-US | | US |
| | | | | | | | | |
| Interest cost | | $ | 349 | | | $ | 1,634 | | | | $ | 430 | | | $ | 1,892 | |
| Return on plan assets | | (232) | | | (3,176) | | | | (494) | | | (2,919) | |
| | | | | | | | | |
| Recognized net actuarial loss | | 0 | | | 0 | | | | 2 | | | 716 | |
| | | | | | | | | |
| Net pension benefit cost (gain) | | $ | 117 | | | $ | (1,542) | | | | $ | (62) | | | $ | (311) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Successor | | | Predecessor |
| | Period From February 6, 2021 through June 30, 2021 | | | Period From January 1, 2021 through February 5, 2021 | | Six Months Ended
June 30, 2020 |
| | Non-US | | US | | | Non-US | | US | | Non-US | | US |
| | | | | | | | | | | | | |
| Interest cost | | $ | 582 | | | $ | 2,724 | | | | $ | 99 | | | $ | 621 | | | $ | 863 | | | $ | 3,784 | |
| Return on plan assets | | (387) | | | (5,294) | | | | (69) | | | (1,250) | | | (993) | | | (5,838) | |
| | | | | | | | | | | | | |
| Recognized net actuarial loss | | 0 | | | 0 | | | | 1 | | | 282 | | | 4 | | | 1,432 | |
| | | | | | | | | | | | | |
| Net pension benefit cost (gain) | | $ | 195 | | | $ | (2,570) | | | | $ | 31 | | | $ | (347) | | | $ | (126) | | | $ | (622) | |
During the period from February 6 through June 30, 2017. If2021, the price of WTI averaged more than $50 per barrel during such period Freeport would have paid $25.0 million to Noble. In addition tofrom January 1 through February 5, 2021 and the $25.0 million contingent payment, if the price of WTI averaged more than $65 per barrel during such period, Freeport would have paid an additional $50.0 million to Noble. These contingent payments did not qualify for hedge accounting treatment under FASB standards,three and therefore, the change in fair value was recognized as a loss in the accompanying Condensed Consolidated Statements of Operations. These contingent payments are referred to as non-designated derivatives in the following tables.
The price of WTI did not average more than $50 per barrel during the 12-month period. As ofsix months ended June 30, 2017,2020, we made 0 contributions to our pension plans. Effective December 31, 2016, employees and alternate payees accrue no future benefits under the fair value of these contingent payments was reduced to zero,US plans and, as such, Noble recognized 0 service costs with the plans for the period for earningfrom February 6 through June 30, 2021, the contingent payments had ended.period from January 1 through February 5, 2021 and the three and six months ended June 30, 2020.
Financial Statement Presentation
The following table, together with Note 10—14— Fair Value of Financial Instruments summarizes the financial statement presentation and fair value of our derivative positions as of September 30, 2017 and December 31, 2016:
|
| | | | | | | | | | |
| | | | | Estimated fair value |
| | | Balance sheet classification | | September 30,
2017 | | December 31,
2016 |
| Asset derivatives | | | | | | |
| Cash flow hedges | | | | | | |
| Foreign currency forward contracts | | Prepaid expenses and other current assets | | $ | 674 |
| | $ | — |
|
| Non-designated derivatives | | | | | | |
| FCX Settlement | | Prepaid expenses and other current assets | | $ | — |
| | $ | 14,400 |
|
NOBLE CORPORATION PLC AND SUBSIDIARIES
NOBLE CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unless otherwise indicated, dollar amounts in tables are in thousands, except per share data)
The following table, together with Note 10— Fair Value of Financial Instruments, summarizes the recognized gains and losses of cash flow hedges and non-designated derivatives through AOCL or as “Contract drilling services” revenue or costs for the three and nine months ended September 30, 2017 and 2016:
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | Three Months Ended September 30, |
| | | 2017 | | 2016 | | 2017 | | 2016 | | 2017 | | 2016 |
| | | Unrealized gain/(loss) recognized through AOCL | | Gain/(loss) reclassified from AOCL to "Contract drilling services" costs | | Gain/(loss) recognized through "Contract drilling services" revenue |
| Cash flow hedges | | | | | | | | | | | | |
| Foreign currency forward contracts | | $ | (65 | ) | | $ | 463 |
| | $ | 542 |
| | $ | (540 | ) | | $ | — |
| | $ | — |
|
| Non-designated derivatives | | | | | | | | | | | | |
| FCX Settlement | | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | (5,194 | ) |
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | Nine Months Ended September 30, |
| | | 2017 | | 2016 | | 2017 | | 2016 | | 2017 | | 2016 |
| | | Unrealized gain/(loss) recognized through AOCL | | Gain/(loss) reclassified from AOCL to "Contract drilling services" costs | | Gain/(loss) recognized through "Contract drilling services" revenue |
| Cash flow hedges | | | | | | | | | | | | |
| Foreign currency forward contracts | | $ | 674 |
| | $ | (605 | ) | | $ | — |
| | $ | — |
| | $ | 679 |
| | $ | (158 | ) |
| Non-designated derivatives | | | | | | | | | | | | |
| FCX Settlement | | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | (14,400 | ) | | $ | 12,406 |
|
Note 10— Fair Value of Financial Instruments
The FASB guidance establishes a fair value hierarchy that distinguishes between assumptions based on market data from independent sources (“observable inputs”) and a reporting entity’s internal assumptions based upon the best information available when external market data is limited or unavailable (“unobservable inputs”). The fair value hierarchy under FASB guidance prioritizes inputs within three levels:
Level 1: Valuations based on quoted prices in active markets for identical assets;
Level 2: Valuations based on observable inputs that do not meet the criteria for Level 1, including quoted prices in inactive markets and quoted prices in active markets for similar but not identical instruments; and
Level 3: Valuations based on unobservable inputs.
The following tables present the carrying amount and estimated fair value of our financial instruments recognized at fair value on a recurring basis:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Successor: | | June 30, 2021 |
| | | | Estimated Fair Value Measurements |
| | Carrying Amount | | Quoted Prices in Active Markets (Level 1) | | Significant Other Observable Inputs
(Level 2) | | Significant Unobservable Inputs
(Level 3) |
Assets - | | | | | | | | |
| Marketable securities | | $ | 7,165 | | | $ | 7,165 | | | $ | 0 | | | $ | 0 | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
|
| | | | | | | | | | | | | | | | |
| | | September 30, 2017 |
| | | Estimated Fair Value Measurements |
| | | Carrying Amount | | Quoted Prices in Active Markets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) |
Assets - | | | | | | | | |
| Marketable securities | | $ | 7,326 |
| | $ | 7,326 |
| | $ | — |
| | $ | — |
|
| Foreign currency forward contracts | | $ | 674 |
| | $ | — |
| | $ | 674 |
| | $ | — |
|
NOBLE CORPORATION PLC AND SUBSIDIARIES
NOBLE CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unless otherwise indicated, dollar amounts in tables are in thousands, except per share data)
| | | | | December 31, 2016 | |
| Predecessor: | | Predecessor: | | December 31, 2020 |
| | | Estimated Fair Value Measurements | | | Estimated Fair Value Measurements |
| | | Carrying Amount | | Quoted Prices in Active Markets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) | | Carrying Amount | | Quoted Prices in Active Markets (Level 1) | | Significant Other Observable Inputs
(Level 2) | | Significant Unobservable Inputs
(Level 3) |
Assets - | | | | | | | | | Assets - | | | | | | | | |
| Marketable securities | | $ | 6,246 |
| | $ | 6,246 |
| | $ | — |
| | $ | — |
| Marketable securities | | $ | 12,326 | | | $ | 12,326 | | | $ | 0 | | | $ | 0 | |
| FCX Settlement | | $ | 14,400 |
| | $ | — |
| | $ | — |
| | $ | 14,400 |
| |
Our cash, and cash equivalents and restricted cash, accounts receivable, marketable securities and accounts payable are by their nature short-term. As a result, the carrying values included in the accompanyingour Condensed Consolidated Balance Sheets approximate fair value. The foreign currency forward contracts have been valued using actively quoted prices and quotes obtained fromSee “Note 8— Debt” for information regarding the counterparties to the contracts.
The following tables present the activity related to the FCX Settlement asset classified within Level 3fair value of the valuation hierarchy for the nine months ended September 30, 2017 and 2016:our debt.
|
| | | | |
| Balance as of December 31, 2015 | | $ | — |
|
| Fair value recognized in earnings | | 17,600 |
|
| Change in fair value recognized in earnings | | (5,194 | ) |
| Balance as of September 30, 2016 | | $ | 12,406 |
|
|
| | | | |
| Balance as of December 31, 2016 | | $ | 14,400 |
|
| Change in fair value recognized in earnings | | (14,400 | ) |
| Balance as of September 30, 2017 | | $ | — |
|
NOBLE CORPORATION PLC AND SUBSIDIARIES
NOBLE CORPORATIONFINANCE COMPANY AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unless otherwise indicated, dollar and share amounts in tables are in thousands, except per share data)
Note 11— Accumulated Other Comprehensive Income (Loss)
The following table presents the changes in the accumulated balances for each component of AOCL for the nine months ended September 30, 2017 and 2016. All amounts within the tables are shown net of tax.
|
| | | | | | | | | | | | | | | | |
| | | Unrealized Gains /(Losses) on Cash Flow Hedges (1) | | Defined Benefit Pension Items (2) | | Foreign Currency Items | | Total |
| Balance at December 31, 2015 | | $ | — |
| | $ | (46,919 | ) | | $ | (16,256 | ) | | $ | (63,175 | ) |
| Activity during period: | | | | | | | | |
| Other comprehensive income (loss) before reclassifications | | (605 | ) | | — |
| | 263 |
| | (342 | ) |
| Amounts reclassified from AOCL | | — |
| | 2,348 |
| | — |
| | 2,348 |
|
| Net other comprehensive income (loss) | | (605 | ) | | 2,348 |
| | 263 |
| | 2,006 |
|
| Balance at September 30, 2016 | | $ | (605 | ) | | $ | (44,571 | ) | | $ | (15,993 | ) | | $ | (61,169 | ) |
| Balance at December 31, 2016 | | $ | — |
| | $ | (35,865 | ) | | $ | (16,275 | ) | | $ | (52,140 | ) |
| Activity during period: | | | | | | | | |
| Other comprehensive income before reclassifications | | 674 |
| | — |
| | 749 |
| | 1,423 |
|
| Amounts reclassified from AOCL | | — |
| | 1,156 |
| | — |
| | 1,156 |
|
| Net other comprehensive income | | 674 |
| | 1,156 |
| | 749 |
| | 2,579 |
|
| Balance at September 30, 2017 | | $ | 674 |
| | $ | (34,709 | ) | | $ | (15,526 | ) | | $ | (49,561 | ) |
| |
(1)
| Gains/(losses) on cash flow hedges are related to foreign currency forward contracts. Reclassifications from AOCL are recognized through “Contract drilling services” costs on our Condensed Consolidated Statements of Operations. See Note 9— Derivative Instruments and Hedging Activities for additional information. |
| |
(2)
| Defined benefit pension items relate to actuarial changes and the amortization of prior service costs. Reclassifications from AOCL are recognized as expense on our Condensed Consolidated Statements of Operations through either “Contract drilling services” or “General and administrative.” See Note 8— Employee Benefit Plans for additional information. |
Note 12—15— Commitments and Contingencies
Transocean Ltd.In January 2017, a subsidiaryTax matters
Subsequent to our filing of Transocean Ltd.an Application for Tentative Refund with the Internal Revenue Service (“Transocean”IRS”) filed suit against us and certain of our subsidiaries for patent infringement in a Texas federal court. The suit claims that five of our newbuild rigs that operatedunder the CARES Act in the U.S. Gulfmonths of Mexico violated Transocean patents relating to what is generally referred to as dual-activity drilling. We were aware ofApril and August 2020, the patents when we constructed the rigs, and we do not believeIRS informed us that our rigs infringe the Transocean patents, which are now expired. The lawsuit is proceeding and we intend to defend ourselves vigorously against this claim.
Department of Justice settlement.In December 2014, one of our subsidiaries reached a settlement with the U.S. Department of Justice (“DOJ”) regarding our former drillship, the Noble Discoverer, and the Kulluk, a rig we were providing contract labor services for, in respect of violations of applicable law discovered in connection with a 2012 Coast Guard inspection in Alaska and our own subsequent internal investigation. Under the terms of the agreement, the subsidiary pled guilty to oil record book, ballast record and required hazardous condition reporting violations with respect to the Noble Discoverer and an oil record book violation with respect to the Kulluk. The subsidiary paid $8.2 million in fines and $4.0 million in community service payments and was placed on probation for four years, provided that we may petition the court for early dismissal of probation after three years. If, during the term of probation, the subsidiary fails to adhere to the terms of the plea agreement, the DOJ may withdraw from the plea agreement andit would be free to prosecute the subsidiary on all charges arising out of its investigation, including any charges dismissed pursuant to the terms of the plea agreement, as well as potentially other charges. We also implementedconducting a comprehensive environmental compliance plan in connection with the settlement.
Brazil commercial agent.We have used a commercial agent in Brazil in connection with our Petróleo Brasileiro S.A. (“Petrobras”) drilling contracts. We understand that this agent has represented a number of different companies in Brazil over many years, including several offshore drilling contractors. In November 2015, this agent pled guilty in Brazil in connection with the award of a drilling contract to a competitor and implicated a Petrobras official as part of a wider investigation of Petrobras’ business practices. Following news reports relating to the agent’s involvement in the Brazil investigation in connection with his activities with other companies, we conducted a review, which is now substantially complete, of our relationship with the agent and with Petrobras. We have been in contact with the SEC, the Brazilian federal prosecutor’s office and the DOJ about this matter. We have cooperated with these agencies and they are aware of our internal review. To our knowledge, neither the
NOBLE CORPORATION PLC AND SUBSIDIARIES
NOBLE CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unless otherwise indicated, dollar amounts in tables are in thousands, except per share data)
agent, nor the government authorities investigating the matter, has alleged that the agent or Noble acted improperly in connection with our contracts with Petrobras.
Paragon Offshore. On August 1, 2014, Noble-UK completed the separation and spin-off of a majority of its standard specification offshore drilling business (the "Spin-off") through a pro rata distribution of all of the ordinary shares of its wholly-owned subsidiary, Paragon Offshore, to the holders of Noble’s ordinary shares. In February 2016, Paragon Offshore sought approval of a pre-negotiated plan of reorganization (the "Prior Plan") by filing for voluntary relief under Chapter 11 of the United States Bankruptcy Code. As part of the Prior Plan, we entered into a settlement agreement with Paragon Offshore (the "Settlement Agreement") under which, in exchange for a full and unconditional release of any claims by Paragon Offshore in connection with the Spin-off (including fraudulent conveyance claims that could be brought on behalf of Paragon Offshore’s creditors), we agreed to provide certain tax bonding in Mexico as well as assume certain tax liabilities and the administration of Mexican tax claims for specified years. The bonding to be provided by Noble-UK was a key benefit to Paragon Offshore of the Settlement Agreement, which was subject to bankruptcy court confirmation as part of a bankruptcy plan. The Prior Plan was rejected by the bankruptcy court in October 2016.
In April 2017, Paragon Offshore filed an updated disclosure statement and a revised plan of reorganization (the "New Plan") in its bankruptcy proceeding. Under the New Plan, including Paragon Offshore’s revised business plan, Paragon Offshore no longer needed the Mexican tax bonding that Noble-UK was to provide under the Settlement Agreement. As a result, the Settlement Agreement was no longer applicable to the ongoing business of Paragon Offshore. Consequently, Paragon Offshore abandoned the Settlement Agreement as part of the New Plan, and the Settlement Agreement was terminated at the time of the filing of the New Plan. On May 2, 2017, Paragon Offshore announced that it had reached an agreement in principle with both its secured and unsecured creditors to revise the New Plan to, among other things, create and fund a $10.0 million litigation trust to pursue litigation against us. On June 7, 2017, the revised New Plan was approved by the bankruptcy court and Paragon Offshore emerged from bankruptcy on July 18, 2017.
We expect Paragon Offshore or its creditors will use the litigation trust to pursue claims against us relating to the Spin-off, including alleged fraudulent conveyance claims. We continue to believe that Paragon Offshore, at the time of the Spin-off, was properly funded, solvent and had appropriate liquidity and that any fraudulent conveyance claim or other claim related to the Spin-off that may be brought by Paragon Offshore or its creditors, would be without merit and would be contested vigorously by us. If litigation is instituted against Noble and we are unsuccessful in defending such claims, it could have a material adverse effect on our financial position, results of operations and/or cash flows.
Prior to the completion of the Spin-off, Noble-UK and Paragon Offshore entered into the Separation Agreements to effect the separation and Spin-off and govern the relationship between the parties after the Spin-off, including the MSA and TSA.
As part of its final bankruptcy plan, Paragon Offshore rejected the Separation Agreements. Accordingly, the indemnity obligations that Paragon Offshore potentially would have owed us under the Separation Agreements have now terminated, including indemnities arising under the MSA and the TSA in respect of obligations related to Paragon Offshore’s business that were incurred through Noble-retained entities prior to the Spin-off. Likewise, any potential indemnity obligations that we would have owed Paragon Offshore under the Separation Agreements, including those under the MSA and the TSA in respect of Noble-UK’s business that was conducted prior to the Spin-off through Paragon Offshore-retained entities, are now also extinguished. In the absence of the Separation Agreements, liabilities relating to the respective parties will be borne by the owner of the legal entity or asset at issue and neither party will look to an allocation based on the historic relationship of an entity or asset to one of the party’s business, as had been the case under the Separation Agreements.
The rejection and ultimate termination of the indemnity and related obligations under the Separation Agreements has resulted in a number of accounting charges and benefits for the nine months ended September 30, 2017, and such termination may continue to affect us in the future as liabilities arise for which we would have been indemnified by Paragon Offshore or would have had to indemnify Paragon Offshore. We do not expect that, overall, the rejection of the Separation Agreements by Paragon Offshore will have a material adverse effect on our financial condition or liquidity. However, any loss we experience with respect to which we would have been able to secure indemnification from Paragon Offshore under one or more of the Separation Agreements could have an adverse impact on our results of operations in any period, which impact may be material depending on our results of operations during this down-cycle.
During the nine months ended September 30, 2017, we recognized net charges of $15.9 million, with a non-cash loss of $1.5 million recorded in "Net loss from discontinued operations, net of tax" on our Condensed Consolidated Statement of Operations relating to the emergence from bankruptcy of Paragon Offshore.
For more information on the Separation Agreements, see our Annual Report on Form 10-K for the year ended December 31, 2016.
Tax matters.During 2014, the IRS began itslimited scope examination of our tax reporting in the U.S. for the taxable years ended December 31, 20102012, 2013, 2014, 2018 and 2011. The2019. In June 2021, the IRS examination team has completed its limited scope examination and did not propose any adjustments to the taxable years ended December 31, 2012, 2013, 2014, 2018 and 2019. As of June 30, 2021, we expect to receive our 2010remaining outstanding CARES Act refund of $15.0 million plus interest. In the first quarter of 2020, we filed a foreign tax credit refund claim for taxable year 2009. In June 2021, the IRS completed its audit of taxable year 2009 in relation to our refund claim and 2011 U.S. tax returns and proposed adjustments and deficiencies with respect to certain items that were reported by us forapproved a refund of $24.5 million plus interest. No other taxable years are currently under audit in the 2010 and 2011 tax year. On December 19, 2016, we received the Revenue Agent Report ("RAR") from the IRS.US. We believe that we have accurately reported all amounts in our returns.
Audit claims of approximately $217.4 million attributable to income and other business taxes were assessed against Noble entities in Mexico related to tax returns,years 2007, 2009 and have submitted administrative
NOBLE CORPORATION PLC AND SUBSIDIARIES
NOBLE CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unless otherwise indicated, dollar amounts2010, in tables areAustralia related to tax years 2013 to 2016, in thousands, except per share data)
protests with the IRS Office of Appeals contesting the examination team’s proposed adjustments.Guyana related to tax years 2019 and 2020, in Saudi Arabia related to tax years 2015 to 2018 and against Pacific Drilling entities in Nigeria related to tax years 2010 to 2018. We intend to vigorously defend our reported positions and believe the ultimate resolution of the adjustments proposed by the IRS examination teamaudit claims will not have a material adverse effect on our condensed consolidated financial statements. During the third quarter of 2017, the IRS initiated its examination of our 2012, 2013, 2014 and 2015 tax returns.
In previous periods, we reported that Mexican and Brazilian authorities had made significant tax assessments against Paragon Offshore entities, a portion of which related to Noble’s business that operated through Paragon Offshore-retained entities in Mexico and Brazil prior to the spin-off. As a result of the termination of the Separation Agreements, we no longer have any indemnity obligations in respect of these tax claims made against Paragon Offshore entities, and responsibility for these claims has reverted back to the applicable Paragon Offshore entity. Audit claims of approximately $51.4 million attributable to income and other business taxes have been assessed against Noble entities in Mexico.
In previous periods, we also reported that Petrobras had notified us that it was challenging assessments by Brazilian tax authorities of withholding taxes associated with the provision of drilling rigs for its operations in Brazil during 2008 and 2009. Petrobras had also notified us that if Petrobras was ultimately forced to pay such withholding taxes, it would seek reimbursement from Paragon Offshore who would then seek reimbursement from us for the portion of the withholding that was allocable to our drilling rigs. As a result of the termination of the Separation Agreements, we no longer have any indemnity obligation in respect of these withholding claims made against a Paragon Offshore entity, and responsibility for these claims has reverted back to the applicable Paragon Offshore entity.
We operate in a number of countries throughout the world and our tax returns filed in those jurisdictions are subject to review and examination by tax authorities within those jurisdictions. We recognize uncertain tax positions that we believe have a greater than 50 percent likelihood of being sustained.sustained upon challenge by a tax authority. We cannot predict or provide assurance as to the ultimate outcome of any existing or future assessments.
Other legal matters.We maintain certain insurance coverage against specified marine perils, which includes physical damage and loss of hire to our drilling rigs along with other associated coverage common in our industry. We maintain a physical damage deductible on our rigs of $25.0 million per occurrence. With respect to the U.S. Gulf of Mexico, hurricane risk has generally resulted in more restrictive and expensive coverage for U.S. named windstorm perils, and we have opted in certain years to maintain limited or no windstorm coverage. Our current program provides for $500.0 million in named windstorm coverage in the U.S. Gulf of Mexico. The loss of hire coverage applies only to our rigs operating under contract with a dayrate equal to or greater than $200,000 a day and is subject to a 45-day waiting period for each unit and each occurrence.contingencies
Although we maintain insurance in the geographic areas in which we operate, pollution, reservoir damage and environmental risks generally are not fully insurable. Our insurance policies and contractual rights to indemnity may not adequately cover our losses or may have exclusions of coverage for some losses. We do not have insurance coverage or rights to indemnity for all risks, including loss of hire insurance on most of the rigs in our fleet. Uninsured exposures may include expatriate activities prohibited by U.S. laws and regulations, radiation hazards, certain loss or damage to property on board our rigs and losses relating to shore-based terrorist acts, strikes or cyber risks. If a significant accident or other event occurs and is not fully covered by insurance or contractual indemnity, it could materially adversely affect our financial position, results of operations or cash flows. Additionally, there can be no assurance that those parties with contractual obligations to indemnify us will necessarily be financially able to indemnify us against all these risks.
We carry protection and indemnity insurance covering marine third party liability exposures, which also includes coverage for employer’s liability resulting from personal injury to our offshore drilling crews. Our protection and indemnity policy currently has a standard deductible of $10.0 million per occurrence, with maximum liability coverage of $750.0 million.
We haveLegacy Noble entered into agreements with certain of our executive officers, as well as certain other employees.officers. These agreements becomebecame effective upon a change of control of Noble-UKNoble (within the meaning set forth in the agreements) or a termination of employment in connection with or in anticipation of a change of control and remainwere effective for three years thereafter. These agreements provideprovided for compensation and certain other benefits under such circumstances. On the Effective Date of our emergence from the Chapter 11 Cases, the Legacy Noble agreements were superseded by new employment agreements with substantially similar terms except that the new agreements provide for certain severance benefits upon termination without cause or resignation for good reason.
We are a defendant in certain claims and litigation arising out of operations in the ordinary course of business, including personal injury claims, the resolution of which, in the opinion of management, will not be material to our financial position, results of operations or cash flows. There is inherent risk in any litigation or dispute and no assurance can be given as to the outcome of these claims.
Note 13— Accounting Pronouncements
In May 2014, the FASB issued ASU No. 2014-9, which creates Accounting Standards Codification (“ASC”) Topic 606, “Revenue from Contracts with Customers,” and supersedes the revenue recognition requirements in Topic 605, “Revenue Recognition,” including most industry-specific revenue recognition guidance throughout the Industry Topics of the Codification. In addition, ASU No. 2014-9 supersedes the cost guidance in Subtopic 605-35, “Revenue Recognition—Construction-Type and Production-Type Contracts,” and creates new Subtopic 340-40, “Other Assets and Deferred Costs—Contracts with Customers.” In summary, the core principle of Topic 606 is to recognize revenue when promised goods or
NOBLE CORPORATION PLC AND SUBSIDIARIES
NOBLE CORPORATIONFINANCE COMPANY AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unless otherwise indicated, dollar and share amounts in tables are in thousands, except per share data)
services are transferred to customers in an amount that reflects the consideration that is expected to be received for those goods or services. The amendments in ASU No. 2014-9 are effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period, and early application is permitted for periods beginning after December 15, 2016. We have formed an implementation work team, completed training on ASC Topic 606 and have begun a project to review relevant contracts. We plan on adopting the new standard effective January 1, 2018 concurrently with ASU No. 2016-2, Leases (ASC Topic 842) as discussed below and applying it retrospectively to all comparative periods presented. Our adoption will have an impact on how our condensed consolidated financial statements and related disclosures will be presented. Upon adoption of these two new standards, we expect to disaggregate our “Contract drilling services” revenue on our Condensed Consolidated Statement of Operations into a lease component and a service component of revenue related to our drilling contracts.
In February 2016, the FASB issued ASU No. 2016-2, which creates ASC Topic 842, “Leases.” This update increases transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. This standard is effective for interim and annual reporting periods beginning after December 15, 2018. Under the updated accounting standards, we have preliminarily determined that our drilling contracts contain a lease component, and our adoption, therefore, will require that we separately recognize revenues associated with the lease and services components. Our adoption, and the ultimate effect on our condensed consolidated financial statements, will be based on an evaluation of the contract-specific facts and circumstances. Due to the interaction with the issued accounting standard on revenue recognition, we expect to adopt ASC 842 effective January 1, 2018, concurrently with ASC 606. We expect to apply the modified retrospective approach to our adoption. Our adoption will have an impact on how our condensed consolidated financial statements and related disclosures will be presented. With respect to leases whereby we are the lessee, we are currently expecting to recognize lease liabilities and offsetting “right of use” assets ranging from approximately $20.0 million to $40.0 million upon adoption, based on our portfolio of leases as of September 30, 2017. We are currently evaluating any other impacts ASC 842 will have on our consolidated financial statements and related disclosures. To facilitate that evaluation, we have completed training on the ASU, formed an implementation team and started the review and documentation of contracts.
In March 2016, the FASB issued ASU No. 2016-9, which amends ASC Topic 718, “Compensation – Stock Compensation.” This amendment simplifies several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities and classification on the statement of cash flows. This standard is effective for interim and annual reporting periods beginning after December 15, 2016 and we adopted the standard as of January 1, 2017. Under the new provision, current period excess tax benefits related to stock compensation are now recognized in our Condensed Consolidated Statement of Operations in “Provision for income taxes,” rather than on our Condensed Consolidated Balance Sheet and Condensed Consolidated Statement of Cash Flows. This update has been applied on a prospective basis. Changes to our Condensed Consolidated Statement of Cash Flows related to the reclassification of prior period excess tax benefits and employee taxes paid for share-based payment arrangements have been implemented on a retrospective basis. In accordance with our adoption of this update, prior period excess tax benefits of approximately $5.5 million, previously classified as a financing activity in “Employee stock transactions” in the Consolidated Statement of Cash Flows for the nine months ended September 30, 2016, are now classified as an operating activity in “Net change in other assets and liabilities” on the accompanying Condensed Consolidated Statement of Cash Flows for the comparative period. Additionally, prior period employee taxes paid for share-based payment arrangements of approximately $3.2 million, previously classified as an operating activity in “Net change in other assets and liabilities” in the Consolidated Statement of Cash Flows for the nine months ended September 30, 2016, are now classified as a financing activity in “Employee stock transactions” on the accompanying Condensed Consolidated Statement of Cash Flows for the comparative period.
In October 2016, the FASB issued ASU No. 2016-16 which amends ASC Topic 740, “Income Taxes.” The amendments in this update improve the accounting for the income tax consequences of intra-entity transfers of assets other than inventory. This standard is effective for interim and annual reporting periods beginning after December 15, 2017 and will be applied on a modified retrospective basis. As a result of the modified retrospective application, we will reduce "Other Assets" in our Condensed Consolidated Balance Sheet with a cumulative adjustment to retained earnings of approximately $152.2 million as of January 1, 2018.
In February 2017, the FASB issued ASU No. 2017-6, which amends ASC Topic 960, “Defined Benefit Pension Plans,” ASC Topic 962, “Defined Contribution Pension Plans” and ASC Topic 965, “Health and Welfare Benefit Plans.” The amendments in this update clarify presentation requirements for an employee benefit plan’s interest in a master trust and require more detailed disclosures of the plan’s interest in the master trust. The amendments also eliminate a redundancy relating to 401(h) account disclosures. This standard is effective for fiscal years beginning after December 15, 2018, with early application permitted. We are evaluating what impact, if any, the adoption of this guidance will have on our financial condition, results of operations, cash flows or financial disclosures.
With the exception of the updated standards discussed above, there have been no new accounting pronouncements not yet effective that have significance, or potential significance, to our condensed consolidated financial statements.
NOBLE CORPORATION PLC AND SUBSIDIARIES
NOBLE CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unless otherwise indicated, dollar amounts in tables are in thousands, except per share data)
Note 14—16— Supplemental Financial Information
Condensed Consolidated Balance Sheets Information
Deferred revenues from drilling contracts totaled $126.5 million and $134.4 million at SeptemberOur Noble restricted cash balance as of June 30, 20172021, February 5, 2021 and December 31, 2016,2020 consisted of $7.4 million, $2.0 million, and $21.7 million, respectively. Such amounts are included in either “Other current liabilities” or “Other liabilities” in the accompanying Condensed Consolidated Balance Sheets, based upon our expected timeOur Finco restricted cash balance as of recognition. Related expenses deferred under drilling contracts totaled $52.1 million at SeptemberJune 30, 2017 as compared to $53.8 million at December 31, 2016, and are included in either “Prepaid expenses and other current assets” or “Other assets” in the accompanying Condensed Consolidated Balance Sheets, based upon our expected time of recognition.
In April 2015, we agreed to contract dayrate reductions for five rigs working for Saudi Arabian Oil Company (“Saudi Aramco”), which were effective from January 1, 2015 through December 31, 2015. During the first quarter of 2016, we agreed to further contract dayrate reductions for the remaining four contracted rigs through the end of 2016. Given current market conditions and based on discussions with the customer, we do not expect the rates to return to the original contract rates. In accordance with accounting standards, we are recognizing the reductions on a straight-line basis over the remaining life of the existing Saudi Aramco contracts. At September 30, 20172021, February 5, 2021 and December 31, 2016, revenues recorded in excess2020 consisted of billings as a result of this recognition totaled $10.8$7.4 million, $2.0 million and $17.9$1.7 million, respectively, of which $8.5 million and $9.2 million, respectively, are includedrespectively. All restricted cash is recorded in “Prepaid expenses and other current assets” and $2.3 million and $8.7 million, respectively, are included in “Other assets,assets.” in the accompanying Condensed Consolidated Balance Sheets, based upon our expected time of recognition.
Condensed Consolidated Statements of Cash Flows Information
Operating cash activities
The net effect of changes in other assets and liabilities on cash flows from operating activities is as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| | Noble |
| | Successor | | | Predecessor |
| | Period From | | | Period From | | |
| | February 6, 2021 | | | January 1, 2021 | | |
| | through | | | through | | Six Months Ended |
| | June 30, 2021 | | | February 5, 2021 | | June 30, 2020 |
| | | | | |
| | | | | | | |
| Accounts receivable | | $ | 826 | | | | $ | (41,344) | | | $ | 34,693 | |
| Other current assets | | 3,285 | | | | 17,884 | | | 10,017 | |
| Other assets | | (12,824) | | | | 8,521 | | | 3,045 | |
| Accounts payable | | 17,243 | | | | (16,819) | | | (9,713) | |
| Other current liabilities | | 25,634 | | | | 11,428 | | | (8,532) | |
| Other liabilities | | 9,875 | | | | (5,846) | | | (7,068) | |
| Total net change in assets and liabilities | | $ | 44,039 | | | | $ | (26,176) | | | $ | 22,442 | |
| | | | Finco |
| | | | | | | | | | | Successor | | | Predecessor |
| | | Noble-UK | | Noble-Cayman | | Period From February 6, 2021 through June 30, 2021 | | | Period From January 1, 2021 through February 5, 2021 | | Six Months Ended
June 30, 2020 |
| | | Nine Months Ended September 30, | | Nine Months Ended September 30, | |
| | | 2017 | | 2016 | | 2017 | | 2016 | |
| Accounts receivable | | $ | 116,619 |
| | $ | 179,364 |
| | $ | 116,619 |
| | $ | 179,364 |
| Accounts receivable | | $ | 826 | | | | $ | (41,344) | | | $ | 34,693 | |
| Other current assets | | 18,421 |
| | 91,606 |
| | 15,860 |
| | 89,858 |
| Other current assets | | (683) | | | | 19,398 | | | 14,387 | |
| Other assets | | (76,002 | ) | | 34,382 |
| | (80,172 | ) | | 19,147 |
| Other assets | | (12,814) | | | | 8,512 | | | 2,292 | |
| Accounts payable | | (11,901 | ) | | (70,778 | ) | | (11,656 | ) | | (68,909 | ) | Accounts payable | | 19,632 | | | | (14,061) | | | (11,816) | |
| Other current liabilities | | 21,503 |
| | (71,789 | ) | | 22,631 |
| | (67,663 | ) | Other current liabilities | | 25,634 | | | | 11,623 | | | (8,563) | |
| Other liabilities | | (92,970 | ) | | (33,619 | ) | | (88,087 | ) | | (18,886 | ) | Other liabilities | | 9,718 | | | | (5,936) | | | (7,068) | |
| | | $ | (24,330 | ) | | $ | 129,166 |
| | $ | (24,805 | ) | | $ | 132,911 |
| |
| Total net change in assets and liabilities | | Total net change in assets and liabilities | | $ | 42,313 | | | | $ | (21,808) | | | $ | 23,925 | |
In accordance with our adoption of ASU No. 2016-9, prior period excess tax benefits,Non-cash investing and financing activities
Additions to property and equipment, at cost for which were previously classified aswe had accrued a financing activitycorresponding liability in “Employee stock transactions,” are now classified as an operating activity in “Net change in other assets and liabilities” on our Condensed Consolidated Statement of Cash Flows and current period excess tax benefits are now recognized in our Condensed Consolidated Statement of Operations through income taxes. Additionally, shares withheld for taxes on employee stock transactions, which were previously classified as an operating activity in “Net change in other assets and liabilities,” are now classified as a financing activity in “Employee stock transactions” on our Condensed Consolidated Statement of Cash Flows.
NOBLE CORPORATION PLC AND SUBSIDIARIES
NOBLE CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unless otherwise indicated, dollar amounts in tables are in thousands, except per share data)
Note 15— Condensed Consolidating Financial Information
Guarantees of Registered Securities
Noble-Cayman, or one or more 100 percent owned subsidiaries of Noble-Cayman, is a co-issuer or full and unconditional guarantor or otherwise obligatedaccounts payable as of SeptemberJune 30, 2017 as follows:
|
| | | | |
| | Issuer | | |
Notes | | (Co-Issuer(s)) | | Guarantor |
$250 million 5.75% Senior Notes due 2018 | | NHIL | | Noble-Cayman |
$202 million 7.50% Senior Notes due 2019 | | NHUS | | Noble-Cayman |
| | Noble Drilling Holding, LLC (“NDH” ) | |
|
| | Noble Drilling Services 6 LLC (“NDS6”) | |
|
$168 million 4.90% Senior Notes due 2020 | | NHIL | | Noble-Cayman |
$209 million 4.625% Senior Notes due2021, February 5, 2021 | | NHIL | | Noble-Cayman |
$126 million 3.95% Senior Notes due 2022 | | NHIL | | Noble-Cayman |
$1 billion 7.75% Senior Notes due 2024 | | NHIL | | Noble-Cayman |
$450 million 7.70% Senior Notes due 2025 | | NHIL | | Noble-Cayman |
$400 million 6.20% Senior Notes due 2040 | | NHIL | | Noble-Cayman |
$400 million 6.05% Senior Notes due 2041 | | NHIL | | Noble-Cayman |
$500 million 5.25% Senior Notes due 2042 | | NHIL | | Noble-Cayman |
$400 million 8.70% Senior Notes due 2045 | | NHIL | | Noble-Cayman |
The following condensed consolidating financial statements of Noble-Cayman, NHUS, NDH, NHIL, NDS6 and all other subsidiaries present investments in both consolidated and unconsolidated affiliates using the equity method of accounting.
NOBLE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEET
September 30, 2017
(in thousands)
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Noble -
Cayman | | NHUS | | NDH | | NHIL | | NDS6 | | Other
Non-guarantor
Subsidiaries
of Noble | | Consolidating
Adjustments | | Total |
| ASSETS | | | | | | | | | | | | | | | | |
| Current assets | | | | | | | | | | | | | | | | |
| Cash and cash equivalents | | $ | 13 |
| | $ | — |
| | $ | 39 |
| | $ | 57 |
| | $ | — |
| | $ | 607,849 |
| | $ | — |
| | $ | 607,958 |
|
| Accounts receivable | | — |
| | — |
| | 23,936 |
| | — |
| | — |
| | 178,597 |
| | — |
| | 202,533 |
|
| Taxes receivable | | — |
| | 29,357 |
| | 3 |
| | — |
| | — |
| | 26,034 |
| | — |
| | 55,394 |
|
| Short-term notes receivable from affiliates | | — |
| | — |
| | 119,476 |
| | — |
| | 2,373,452 |
| | — |
| | (2,492,928 | ) | | — |
|
| Accounts receivable from affiliates | | 593,643 |
| | 1,454 |
| | 124,519 |
| | 60,945 |
| | 411,853 |
| | 5,780,487 |
| | (6,972,901 | ) | | — |
|
| Prepaid expenses and other current assets | | 96 |
| | — |
| | 967 |
| | 19 |
| | 1 |
| | 72,566 |
| | — |
| | 73,649 |
|
| Total current assets | | 593,752 |
| | 30,811 |
| | 268,940 |
| | 61,021 |
| | 2,785,306 |
| | 6,665,533 |
| | (9,465,829 | ) | | 939,534 |
|
| Property and equipment, at cost | | — |
| | — |
| | 1,071,989 |
| | — |
| | — |
| | 11,349,776 |
| | — |
| | 12,421,765 |
|
| Accumulated depreciation | | — |
| | — |
| | (260,496 | ) | | — |
| | — |
| | (2,449,002 | ) | | — |
| | (2,709,498 | ) |
| Property and equipment, net | | — |
| | — |
| | 811,493 |
| | — |
| | — |
| | 8,900,774 |
| | — |
| | 9,712,267 |
|
| Notes receivable from affiliates | | 3,177,249 |
| | — |
| | 1,077,773 |
| | — |
| | 3,943,299 |
| | 1,173,281 |
| | (9,371,602 | ) | | — |
|
| Investments in affiliates | | 4,941,085 |
| | 4,601,780 |
| | 5,340,411 |
| | 12,539,320 |
| | 7,254,988 |
| | — |
| | (34,677,584 | ) | | — |
|
| Other assets | | 3,046 |
| | 16,775 |
| | 6,026 |
| | — |
| | — |
| | 218,901 |
| | — |
| | 244,748 |
|
| Total assets | | $ | 8,715,132 |
| | $ | 4,649,366 |
| | $ | 7,504,643 |
| | $ | 12,600,341 |
| | $ | 13,983,593 |
| | $ | 16,958,489 |
| | $ | (53,515,015 | ) | | $ | 10,896,549 |
|
| LIABILITIES AND EQUITY | | | | | | | | | | | | | | | | |
| Current liabilities | | | | | | | | | | | | | | | | |
| Current maturities of long-term debt | | — |
| | 1,605,243 |
| | — |
| | 249,652 |
| | — |
| | 887,685 |
| | (2,492,928 | ) | | 249,652 |
|
| Accounts payable | | — |
| | — |
| | 2,004 |
| | — |
| | — |
| | 81,871 |
| | — |
| | 83,875 |
|
| Accrued payroll and related costs | | — |
| | — |
| | 4,959 |
| | — |
| | — |
| | 41,885 |
| | — |
| | 46,844 |
|
| Accounts payable to affiliates | | 3,407,065 |
| | 391,266 |
| | 1,802,128 |
| | 553,930 |
| | — |
| | 818,512 |
| | (6,972,901 | ) | | — |
|
| Taxes payable | | — |
| | — |
| | 1 |
| | — |
| | — |
| | 53,202 |
| | — |
| | 53,203 |
|
| Interest payable | | 2,211 |
| | — |
| | — |
| | 53,833 |
| | 8,236 |
| | — |
| | — |
| | 64,280 |
|
| Other current liabilities | | 16 |
| | — |
| | 945 |
| | — |
| | — |
| | 95,827 |
| | — |
| | 96,788 |
|
| Total current liabilities | | 3,409,292 |
| | 1,996,509 |
| | 1,810,037 |
| | 857,415 |
| | 8,236 |
| | 1,978,982 |
| | (9,465,829 | ) | | 594,642 |
|
| Long-term debt | | — |
| | — |
| | — |
| | 3,593,814 |
| | 201,513 |
| | — |
| | — |
| | 3,795,327 |
|
| Notes payable to affiliates | | — |
| | 700,000 |
| | 472,620 |
| | 3,175,662 |
| | — |
| | 5,023,320 |
| | (9,371,602 | ) | | — |
|
| Deferred income taxes | | — |
| | — |
| | — |
| | — |
| | — |
| | 253,444 |
| | — |
| | 253,444 |
|
| Other liabilities | | 19,929 |
| | — |
| | 10,774 |
| | — |
| | — |
| | 258,627 |
| | — |
| | 289,330 |
|
| Total liabilities | | 3,429,221 |
| | 2,696,509 |
| | 2,293,431 |
| | 7,626,891 |
| | 209,749 |
| | 7,514,373 |
| | (18,837,431 | ) | | 4,932,743 |
|
| Commitments and contingencies | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
| Total shareholder equity | | 5,285,911 |
| | 1,952,857 |
| | 5,211,212 |
| | 4,973,450 |
| | 13,773,844 |
| | 8,766,221 |
| | (34,677,584 | ) | | 5,285,911 |
|
| Noncontrolling interests | | — |
| | — |
| | — |
| | — |
| | — |
| | 677,895 |
| | — |
| | 677,895 |
|
| Total equity | | 5,285,911 |
| | 1,952,857 |
| | 5,211,212 |
| | 4,973,450 |
| | 13,773,844 |
| | 9,444,116 |
| | (34,677,584 | ) | | 5,963,806 |
|
| Total liabilities and equity | | $ | 8,715,132 |
| | $ | 4,649,366 |
| | $ | 7,504,643 |
| | $ | 12,600,341 |
| | $ | 13,983,593 |
| | $ | 16,958,489 |
| | $ | (53,515,015 | ) | | $ | 10,896,549 |
|
NOBLE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEET
December 31, 20162020 were $34.3 million, $31.0 million and $35.3 million, respectively.
(Additions to property and equipment, at cost for which we had accrued a corresponding liability in thousands)accounts payable as of June 30, 2020 and December 31, 2019 were $32.1 million and $36.0 million, respectively.
(Unaudited)On the Effective Date, an aggregate principal amount of $216.0 million of Second Lien Notes was issued, which includes the aggregate subscription price of $200.0 million, plus a backstop fee of $16.0 million which was paid in kind.
On April 15, 2021, Noble completed the Merger, issuing 16.6 million Ordinary Shares valued at $357.7 million, in exchange for $422.1 million net assets acquired. See “Note 4— Acquisitions” for additional information.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Noble-
Cayman |
| NHUS |
| NDH |
| NHIL |
| NDS6 |
| Other
Non-guarantor
Subsidiaries
of Noble |
| Consolidating
Adjustments |
| Total |
| ASSETS | | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
| Current assets | | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
| Cash and cash equivalents | | $ | 2,537 |
| | $ | — |
| | $ | 10,855 |
| | $ | — |
| | $ | — |
| | $ | 640,441 |
| | $ | — |
| | $ | 653,833 |
|
| Accounts receivable | | — |
| | — |
| | 33,162 |
| | — |
| | — |
| | 285,990 |
| | — |
| | 319,152 |
|
| Taxes receivable | | — |
| | 21,428 |
| | — |
| | — |
| | — |
| | 34,052 |
| | — |
| | 55,480 |
|
| Short-term notes receivable from affiliates | | — |
| | — |
| | 243,915 |
| | — |
| | 1,349,708 |
| | 52,611 |
| | (1,646,234 | ) | | — |
|
| Accounts receivable from affiliates | | 361,313 |
| | — |
| | 137,476 |
| | 67,560 |
| | 85,274 |
| | 3,038,658 |
| | (3,690,281 | ) | | — |
|
| Prepaid expenses and other current assets | | 270 |
| | — |
| | 1,611 |
| | — |
| | — |
| | 86,868 |
| | — |
| | 88,749 |
|
| Total current assets | | 364,120 |
| | 21,428 |
| | 427,019 |
| | 67,560 |
| | 1,434,982 |
| | 4,138,620 |
| | (5,336,515 | ) | | 1,117,214 |
|
| Property and equipment, at cost | | — |
| | — |
| | 2,376,862 |
| | — |
| | — |
| | 9,988,026 |
| | — |
| | 12,364,888 |
|
| Accumulated depreciation | | — |
| | — |
| | (428,308 | ) | | — |
| | — |
| | (1,874,632 | ) | | — |
| | (2,302,940 | ) |
| Property and equipment, net | | — |
| | — |
| | 1,948,554 |
| | — |
| | — |
| | 8,113,394 |
| | — |
| | 10,061,948 |
|
| Notes receivable from affiliates | | 3,304,672 |
| | — |
| | 112,706 |
| | 69,564 |
| | 5,000 |
| | 1,798,614 |
| | (5,290,556 | ) | | — |
|
| Investments in affiliates | | 2,848,855 |
| | 2,007,016 |
| | 1,411,874 |
| | 8,369,728 |
| | 6,129,082 |
| | — |
| | (20,766,555 | ) | | — |
|
| Other assets | | 4,292 |
| | — |
| | 5,687 |
| | — |
| | — |
| | 168,573 |
| | — |
| | 178,552 |
|
| Total assets | | $ | 6,521,939 |
| | $ | 2,028,444 |
| | $ | 3,905,840 |
| | $ | 8,506,852 |
| | $ | 7,569,064 |
| | $ | 14,219,201 |
| | $ | (31,393,626 | ) | | $ | 11,357,714 |
|
| LIABILITIES AND EQUITY | | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
| Current liabilities | | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
| Short-term notes payables to affiliates | | $ | — |
| | $ | 171,925 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 1,474,309 |
| | $ | (1,646,234 | ) | | $ | — |
|
| Current maturities of long-term debt | | — |
| | — |
| | — |
| | 299,882 |
| | — |
| | — |
| | — |
| | 299,882 |
|
| Accounts payable | | — |
| | — |
| | 4,228 |
| | — |
| | — |
| | 103,640 |
| | — |
| | 107,868 |
|
| Accrued payroll and related costs | | — |
| | — |
| | 4,882 |
| | — |
| | — |
| | 43,437 |
| | — |
| | 48,319 |
|
| Accounts payable to affiliates | | 818,737 |
| | 111,801 |
| | 1,995,788 |
| | 123,642 |
| | — |
| | 640,313 |
| | (3,690,281 | ) | | — |
|
| Taxes payable | | — |
| | — |
| | — |
| | — |
| | — |
| | 46,561 |
| | — |
| | 46,561 |
|
| Interest payable | | 48 |
| | — |
| | — |
| | 56,839 |
| | 4,412 |
| | — |
| | — |
| | 61,299 |
|
| Other current liabilities | | 12 |
| | — |
| | 4,296 |
| | — |
| | — |
| | 63,004 |
| | — |
| | 67,312 |
|
| Total current liabilities | | 818,797 |
| | 283,726 |
| | 2,009,194 |
| | 480,363 |
| | 4,412 |
| | 2,371,264 |
| | (5,336,515 | ) | | 631,241 |
|
| Long-term debt | | — |
| | — |
| | — |
| | 3,838,807 |
| | 201,422 |
| | — |
| | — |
| | 4,040,229 |
|
| Notes payable to affiliates | | — |
| | 700,000 |
| | 467,139 |
| | 744,181 |
| | — |
| | 3,379,236 |
| | (5,290,556 | ) | | — |
|
| Deferred income taxes | | — |
| | — |
| | 534 |
| | — |
| | — |
| | 1,550 |
| | — |
| | 2,084 |
|
| Other liabilities | | 19,929 |
| | — |
| | 24,035 |
| | — |
| | — |
| | 248,219 |
| | — |
| | 292,183 |
|
| Total liabilities | | 838,726 |
| | 983,726 |
| | 2,500,902 |
| | 5,063,351 |
| | 205,834 |
| | 6,000,269 |
| | (10,627,071 | ) | | 4,965,737 |
|
| Commitments and contingencies | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
| Total shareholder equity | | 5,683,213 |
| | 1,044,718 |
| | 1,404,938 |
| | 3,443,501 |
| | 7,363,230 |
| | 7,106,323 |
| | (20,362,710 | ) | | 5,683,213 |
|
| Noncontrolling interests | | — |
| | — |
| | — |
| | — |
| | — |
| | 1,112,609 |
| | (403,845 | ) | | 708,764 |
|
| Total equity | | 5,683,213 |
| | 1,044,718 |
| | 1,404,938 |
| | 3,443,501 |
| | 7,363,230 |
| | 8,218,932 |
| | (20,766,555 | ) | | 6,391,977 |
|
| Total liabilities and equity | | $ | 6,521,939 |
| | $ | 2,028,444 |
| | $ | 3,905,840 |
| | $ | 8,506,852 |
| | $ | 7,569,064 |
| | $ | 14,219,201 |
| | $ | (31,393,626 | ) | | $ | 11,357,714 |
|
NOBLE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS and COMPREHENSIVE INCOME (LOSS)
Three Months Ended September 30, 2017
(in thousands)
(Unaudited)
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Noble-
Cayman |
| NHUS |
| NDH |
| NHIL |
| NDS6 |
| Other
Non-guarantor
Subsidiaries
of Noble |
| Consolidating
Adjustments |
| Total |
| Operating revenues | | | | | | | | | | | | | | | | |
| Contract drilling services | | $ | — |
| | $ | — |
| | $ | 37,675 |
| | $ | — |
| | $ | — |
| | $ | 231,873 |
| | $ | (9,808 | ) | | $ | 259,740 |
|
| Reimbursables and other | | — |
| | — |
| | 863 |
| | — |
| | — |
| | 5,609 |
| | — |
| | 6,472 |
|
| Total operating revenues | | — |
| | — |
| | 38,538 |
| | — |
| | — |
| | 237,482 |
| | (9,808 | ) | | 266,212 |
|
| Operating costs and expenses | | | | | | | | | | | | | | | | |
| Contract drilling services | | 67 |
| | 3,056 |
| | 10,306 |
| | 852 |
| | — |
| | 160,095 |
| | (9,808 | ) | | 164,568 |
|
| Reimbursables | | — |
| | — |
| | 490 |
| | — |
| | — |
| | 3,344 |
| | — |
| | 3,834 |
|
| Depreciation and amortization | | — |
| | — |
| | 13,971 |
| | — |
| | — |
| | 122,680 |
| | — |
| | 136,651 |
|
| General and administrative | | 28 |
| | 1,229 |
| | — |
| | 371 |
| | — |
| | 8,195 |
| | — |
| | 9,823 |
|
| Total operating costs and expenses | | 95 |
| | 4,285 |
| | 24,767 |
| | 1,223 |
| | — |
| | 294,314 |
| | (9,808 | ) | | 314,876 |
|
| Operating income (loss) | | (95 | ) | | (4,285 | ) | | 13,771 |
| | (1,223 | ) | | — |
| | (56,832 | ) | | — |
| | (48,664 | ) |
| Other income (expense) | | | | | | | | | | | | | | | | |
| Income (loss) of unconsolidated affiliates | | (88,898 | ) | | (64,360 | ) | | 7,347 |
| | 22,238 |
| | (20,878 | ) | | — |
| | 144,551 |
| | — |
|
| Interest income (expense), net of amounts capitalized | | (2,592 | ) | | (4,492 | ) | | (3,533 | ) | | (108,892 | ) | | (3,813 | ) | | (24,877 | ) | | 75,312 |
| | (72,887 | ) |
| Interest income and other, net | | 1,602 |
| | (50 | ) | | 16,273 |
| | (52 | ) | | 53,897 |
| | 3,916 |
| | (75,312 | ) | | 274 |
|
| Income (loss) before income taxes | | (89,983 | ) | | (73,187 | ) | | 33,858 |
| | (87,929 | ) | | 29,206 |
| | (77,793 | ) | | 144,551 |
| | (121,277 | ) |
| Income tax benefit (provision) | | — |
| | 53,957 |
| | (19 | ) | | — |
| | — |
| | (25,333 | ) | | — |
| | 28,605 |
|
| Net income (loss) | | (89,983 | ) | | (19,230 | ) | | 33,839 |
| | (87,929 | ) | | 29,206 |
| | (103,126 | ) | | 144,551 |
| | (92,672 | ) |
| Net (income) loss attributable to noncontrolling interests | | — |
| | — |
| | — |
| | — |
| | — |
| | 3,867 |
| | (1,178 | ) | | 2,689 |
|
| Net income (loss) attributable to Noble Corporation | | (89,983 | ) | | (19,230 | ) | | 33,839 |
| | (87,929 | ) | | 29,206 |
| | (99,259 | ) | | 143,373 |
| | (89,983 | ) |
| Other comprehensive income (loss), net | | 793 |
| | — |
| | — |
| | — |
| | — |
| | 793 |
| | (793 | ) | | 793 |
|
| Comprehensive income (loss) attributable to Noble Corporation | | $ | (89,190 | ) | | $ | (19,230 | ) | | $ | 33,839 |
| | $ | (87,929 | ) | | $ | 29,206 |
| | $ | (98,466 | ) | | $ | 142,580 |
| | $ | (89,190 | ) |
NOBLE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS and COMPREHENSIVE INCOME (LOSS)
Nine Months Ended September 30, 2017
(in thousands)
(Unaudited)
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Noble-
Cayman | | NHUS | | NDH | | NHIL | | NDS6 | | Other
Non-guarantor
Subsidiaries
of Noble | | Consolidating
Adjustments | | Total |
| Operating revenues | | | | | | | | | | | | | | | | |
| Contract drilling services | | $ | — |
| | $ | — |
| | $ | 124,767 |
| | $ | — |
| | $ | — |
| | $ | 798,085 |
| | $ | (36,921 | ) | | $ | 885,931 |
|
| Reimbursables and other | | — |
| | — |
| | 2,891 |
| | — |
| | — |
| | 18,508 |
| | — |
| | 21,399 |
|
| Total operating revenues | | — |
| | — |
| | 127,658 |
| | — |
| | — |
| | 816,593 |
| | (36,921 | ) | | 907,330 |
|
| Operating costs and expenses | | | | | | | | | | | | | | | | |
| Contract drilling services | | 202 |
| | 8,989 |
| | 34,492 |
| | 2,505 |
| | — |
| | 477,174 |
| | (36,921 | ) | | 486,441 |
|
| Reimbursables | | — |
| | — |
| | 1,782 |
| | — |
| | — |
| | 11,592 |
| | — |
| | 13,374 |
|
| Depreciation and amortization | | — |
| | — |
| | 44,491 |
| | — |
| | — |
| | 362,511 |
| | — |
| | 407,002 |
|
| General and administrative | | 99 |
| | 4,074 |
| | — |
| | 1,263 |
| | 9 |
| | 26,673 |
| | — |
| | 32,118 |
|
| Total operating costs and expenses | | 301 |
| | 13,063 |
| | 80,765 |
| | 3,768 |
| | 9 |
| | 877,950 |
| | (36,921 | ) | | 938,935 |
|
| Operating income (loss) | | (301 | ) | | (13,063 | ) | | 46,893 |
| | (3,768 | ) | | (9 | ) | | (61,357 | ) | | — |
| | (31,605 | ) |
| Other income (expense) | | | | | | | | | | | | | | | | |
| Income (loss) of unconsolidated affiliates - continuing operations | | (469,274 | ) | | (477,279 | ) | | 48,830 |
| | 167,531 |
| | 35,388 |
| | — |
| | 694,804 |
| | — |
|
| Income (loss) of unconsolidated affiliates - discontinued operations, net of tax | | 2,967 |
| | 4,566 |
| | — |
| | — |
| | — |
| | — |
| | (7,533 | ) | | — |
|
| Interest income (expense), net of amounts capitalized | | (7,775 | ) | | (28,348 | ) | | (9,916 | ) | | (322,580 | ) | | (11,484 | ) | | (105,324 | ) | | 265,884 |
| | (219,543 | ) |
| Interest income and other, net | | 8,880 |
| | (141 | ) | | 70,484 |
| | 4,871 |
| | 170,875 |
| | 15,036 |
| | (265,884 | ) | | 4,121 |
|
| Income (loss) from continuing operations before income taxes | | (465,503 | ) | | (514,265 | ) | | 156,291 |
| | (153,946 | ) | | 194,770 |
| | (151,645 | ) | | 687,271 |
| | (247,027 | ) |
| Income tax benefit (provision) | | — |
| | 170,543 |
| | (345 | ) | | — |
| | — |
| | (380,753 | ) | | — |
| | (210,555 | ) |
| Net income (loss) from continuing operations | | (465,503 | ) | | (343,722 | ) | | 155,946 |
| | (153,946 | ) | | 194,770 |
| | (532,398 | ) | | 687,271 |
| | (457,582 | ) |
| Net income (loss) from discontinuing operations, net of tax | | — |
| | (1,598 | ) | | — |
| | — |
| | — |
| | 4,565 |
| | — |
| | 2,967 |
|
| Net Income (loss) | | (465,503 | ) | | (345,320 | ) | | 155,946 |
| | (153,946 | ) | | 194,770 |
| | (527,833 | ) | | 687,271 |
| | (454,615 | ) |
| Net income attributable to noncontrolling interests | | — |
| | — |
| | — |
| | — |
| | — |
| | (8,894 | ) | | (1,994 | ) | | (10,888 | ) |
| Net income (loss) attributable to Noble Corporation | | (465,503 | ) | | (345,320 | ) | | 155,946 |
| | (153,946 | ) | | 194,770 |
| | (536,727 | ) | | 685,277 |
| | (465,503 | ) |
| Other comprehensive income (loss), net | | 2,579 |
| | — |
| | — |
| | — |
| | — |
| | 2,579 |
| | (2,579 | ) | | 2,579 |
|
| Comprehensive income (loss) attributable to Noble Corporation | | $ | (462,924 | ) | | $ | (345,320 | ) | | $ | 155,946 |
| | $ | (153,946 | ) | | $ | 194,770 |
| | $ | (534,148 | ) | | $ | 682,698 |
| | $ | (462,924 | ) |
NOBLE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF INCOME and COMPREHENSIVE INCOME (LOSS)
Three Months Ended September 30, 2016
(in thousands)
(Unaudited)
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Noble-
Cayman |
| NHUS |
| NDH |
| NHIL |
| NDS6 |
| Other
Non-guarantor
Subsidiaries
of Noble |
| Consolidating
Adjustments |
| Total |
| Operating revenues | | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
| Contract drilling services | | $ | — |
| | $ | — |
| | $ | 52,333 |
| | $ | — |
| | $ | — |
| | $ | 331,916 |
| | $ | (10,992 | ) | | $ | 373,257 |
|
| Reimbursables and other | | — |
| | — |
| | 2,933 |
| | — |
| | — |
| | 8,963 |
| | — |
| | 11,896 |
|
| Total operating revenues | | — |
| | — |
| | 55,266 |
| | — |
| | — |
| | 340,879 |
| | (10,992 | ) | | 385,153 |
|
| Operating costs and expenses | | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
| Contract drilling services | | 857 |
| | 3,914 |
| | 20,487 |
| | 17,483 |
| | — |
| | 174,323 |
| | (10,992 | ) | | 206,072 |
|
| Reimbursables | | — |
| | — |
| | 2,702 |
| | — |
| | — |
| | 6,440 |
| | — |
| | 9,142 |
|
| Depreciation and amortization | | — |
| | — |
| | 22,661 |
| | — |
| | — |
| | 132,581 |
| | — |
| | 155,242 |
|
| General and administrative | | 203 |
| | 1,552 |
| | — |
| | 7,231 |
| | — |
| | 3,047 |
| | — |
| | 12,033 |
|
| Loss on impairment | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Total operating costs and expenses | | 1,060 |
| | 5,466 |
|
| 45,850 |
|
| 24,714 |
| — |
| — |
|
| 316,391 |
|
| (10,992 | ) | | 382,489 |
|
| Operating income (loss) | | (1,060 | ) | | (5,466 | ) | | 9,416 |
| | (24,714 | ) | | — |
| | 24,488 |
| | — |
| | 2,664 |
|
| Other income (expense) | | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
| Income (loss) of unconsolidated affiliates | | (49,010 | ) | | 17,529 |
| | (6,572 | ) | | 10,186 |
| | 12,187 |
| | — |
| | 15,680 |
| | — |
|
| Interest expense, net of amounts capitalized | | (2,472 | ) | | (25,311 | ) | | (2,872 | ) | | (52,073 | ) | | (3,258 | ) | | (10,278 | ) | | 43,695 |
| | (52,569 | ) |
| Gain on extinguishment of debt, net | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Interest income and other, net | | 1,666 |
| | 30 |
| | 2,816 |
| | 525 |
| | 6,046 |
| | 33,180 |
| | (43,695 | ) | | 568 |
|
| Income (loss) from continuing operations before income taxes | | (50,876 | ) | | (13,218 | ) | | 2,788 |
| | (66,076 | ) | | 14,975 |
| | 47,390 |
| | 15,680 |
| | (49,337 | ) |
| Income tax provision | | — |
| | (10,050 | ) | | (167 | ) | | — |
| | — |
| | 19,524 |
| | — |
| | 9,307 |
|
| Net income (loss) | | (50,876 | ) | | (23,268 | ) | | 2,621 |
| | (66,076 | ) | | 14,975 |
| | 66,914 |
| | 15,680 |
| | (40,030 | ) |
| Net (income) loss attributable to noncontrolling interests | | — |
| | — |
| | — |
| | — |
| | — |
| | (5,933 | ) | | (4,913 | ) | | (10,846 | ) |
| Net income (loss) attributable to Noble Corporation | | (50,876 | ) | | (23,268 | ) | | 2,621 |
| | (66,076 | ) | | 14,975 |
| | 60,981 |
| | 10,767 |
| | (50,876 | ) |
| Other comprehensive income (loss), net | | 701 |
| | — |
| | — |
| | — |
| | — |
| | 701 |
| | (701 | ) | | 701 |
|
| Comprehensive income (loss) attributable to Noble Corporation | | $ | (50,175 | ) | | $ | (23,268 | ) | | $ | 2,621 |
| | $ | (66,076 | ) | | $ | 14,975 |
| | $ | 61,682 |
| | $ | 10,066 |
| | $ | (50,175 | ) |
NOBLE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF INCOME and COMPREHENSIVE INCOME (LOSS)
Nine Months Ended September 30, 2016
(in thousands)
(Unaudited)
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Noble-
Cayman | | NHUS | | NDH | | NHIL | | NDS6 | | Other
Non-guarantor
Subsidiaries
of Noble | | Consolidating
Adjustments | | Total |
| Operating revenues | | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
| Contract drilling services | | $ | — |
| | $ | — |
| | $ | 169,379 |
| | $ | — |
| | $ | — |
| | $ | 1,728,374 |
| | $ | (56,432 | ) | | $ | 1,841,321 |
|
| Reimbursables and other | | — |
| | — |
| | 6,301 |
| | — |
| | — |
| | 44,987 |
| | — |
| | 51,288 |
|
| Total operating revenues | | — |
| | — |
| | 175,680 |
| | — |
| | — |
| | 1,773,361 |
| | (56,432 | ) | | 1,892,609 |
|
| Operating costs and expenses | | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
| Contract drilling services | | 3,574 |
| | 15,627 |
| | 47,005 |
| | 69,087 |
| | — |
| | 618,735 |
| | (56,432 | ) | | 697,596 |
|
| Reimbursables | | — |
| | — |
| | 5,589 |
| | — |
| | — |
| | 33,857 |
| | — |
| | 39,446 |
|
| Depreciation and amortization | | — |
| | — |
| | 66,431 |
| | — |
| | — |
| | 389,422 |
| | — |
| | 455,853 |
|
| General and administrative | | 928 |
| | 7,207 |
| | — |
| | 32,696 |
| | 1 |
| | (4,341 | ) | | — |
| | 36,491 |
|
| Loss on impairment | | — |
| | — |
| | — |
| | — |
| | — |
| | 16,616 |
| | — |
| | 16,616 |
|
| Total operating costs and expenses | | 4,502 |
| | 22,834 |
|
| 119,025 |
|
| 101,783 |
|
| 1 |
|
| 1,054,289 |
|
| (56,432 | ) |
| 1,246,002 |
|
| Operating income (loss) | | (4,502 | ) | | (22,834 | ) | | 56,655 |
| | (101,783 | ) | | (1 | ) | | 719,072 |
| | — |
| | 646,607 |
|
| Other income (expense) | | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
| Income (loss) of unconsolidated affiliates | | 331,777 |
| | 58,134 |
| | (64,854 | ) | | 640,942 |
| | 610,992 |
| | — |
| | (1,576,991 | ) | | — |
|
| Interest income (expense), net of amounts capitalized | | (25,256 | ) | | (47,977 | ) | | (8,436 | ) | | (173,294 | ) | | (11,722 | ) | | (109,781 | ) | | 209,491 |
| | (166,975 | ) |
| Gain on extinguishment of debt, net | | — |
| | — |
| | — |
| | 11,066 |
| | — |
| | — |
| | — |
| | 11,066 |
|
| Interest income and other, net | | 94,974 |
| | 80 |
| | 9,719 |
| | 19,885 |
| | 6,808 |
| | 76,657 |
| | (209,491 | ) | | (1,368 | ) |
| Income (loss) from continuing operations before income taxes | | 396,993 |
| | (12,597 | ) | | (6,916 | ) | | 396,816 |
| | 606,077 |
| | 685,948 |
| | (1,576,991 | ) | | 489,330 |
|
| Income tax (provision) benefit | | — |
| | (43,788 | ) | | (545 | ) | | — |
| | — |
| | 4,023 |
| | — |
| | (40,310 | ) |
| Net income (loss) | | 396,993 |
| | (56,385 | ) | | (7,461 | ) | | 396,816 |
| | 606,077 |
| | 689,971 |
| | (1,576,991 | ) | | 449,020 |
|
| Net (income) loss attributable to noncontrolling interests | | — |
| | — |
| | — |
| | — |
| | — |
| | (70,980 | ) | | 18,953 |
| | (52,027 | ) |
| Net income (loss) attributable to Noble Corporation | | 396,993 |
| | (56,385 | ) | | (7,461 | ) | | 396,816 |
| | 606,077 |
| | 618,991 |
| | (1,558,038 | ) | | 396,993 |
|
| Other comprehensive income (loss), net | | 2,006 |
| | — |
| | — |
| | — |
| | — |
| | 2,006 |
| | (2,006 | ) | | 2,006 |
|
| Comprehensive income (loss) attributable to Noble Corporation | | $ | 398,999 |
| | $ | (56,385 | ) | | $ | (7,461 | ) | | $ | 396,816 |
| | $ | 606,077 |
| | $ | 620,997 |
| | $ | (1,560,044 | ) | | $ | 398,999 |
|
NOBLE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
Nine Months Ended September 30, 2017
(in thousands)
(Unaudited)
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Noble-
Cayman |
| NHUS |
| NDH |
| NHIL |
| NDS6 |
| Other
Non-guarantor
Subsidiaries
of Noble |
| Consolidating
Adjustments |
| Total |
| Cash flows from operating activities | | | | | | | | | | | | | | | | |
| Net cash provided by (used in) operating activities | | $ | 26,122 |
| | $ | 102,689 |
| | $ | 141,843 |
| | $ | (324,502 | ) | | $ | 163,205 |
| | $ | 212,606 |
| | $ | — |
| | $ | 321,963 |
|
| Cash flows from investing activities | | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
| Capital expenditures | | — |
| | — |
| | (2,552 | ) | | — |
| | — |
| | (84,148 | ) | | — |
| | (86,700 | ) |
| Proceeds from disposal of assets | | — |
| | — |
| | 46 |
| | — |
| | — |
| | 1,260 |
| | — |
| | 1,306 |
|
| Net cash used in investing activities | | — |
| | — |
| | (2,506 | ) | | — |
| | — |
| | (82,888 | ) | | — |
| | (85,394 | ) |
| Cash flows from financing activities | | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
| Repayment of long-term debt | | — |
| | — |
| | — |
| | (300,000 | ) | | — |
| | — |
| | — |
| | (300,000 | ) |
| Debt issuance costs on senior notes and credit facility | | — |
| | — |
| | — |
| | (42 | ) | | — |
| | — |
| | — |
| | (42 | ) |
| Dividends paid to noncontrolling interests | | — |
| | — |
| | — |
| | — |
| | — |
| | (26,293 | ) | | — |
| | (26,293 | ) |
| Distributions to parent company, net | | 43,891 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 43,891 |
|
| Advances (to) from affiliates | | (72,537 | ) | | (102,689 | ) | | (150,153 | ) | | 624,601 |
| | (163,205 | ) | | (136,017 | ) | | — |
| | — |
|
| Net cash provided by (used in) financing activities | | (28,646 | ) | | (102,689 | ) | | (150,153 | ) | | 324,559 |
| | (163,205 | ) | | (162,310 | ) | | — |
| | (282,444 | ) |
| Net change in cash and cash equivalents | | (2,524 | ) | | — |
| | (10,816 | ) | | 57 |
| | — |
| | (32,592 | ) | | — |
| | (45,875 | ) |
| Cash and cash equivalents, beginning of period | | 2,537 |
| | — |
| | 10,855 |
| | — |
| | — |
| | 640,441 |
| | — |
| | 653,833 |
|
| Cash and cash equivalents, end of period | | $ | 13 |
| | $ | — |
| | $ | 39 |
| | $ | 57 |
| | $ | — |
| | $ | 607,849 |
| | $ | — |
| | $ | 607,958 |
|
NOBLE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
Nine Months Ended September 30, 2016
(in thousands)
(Unaudited)
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Noble-
Cayman |
| NHUS |
| NDH |
| NHIL |
| NDS6 |
| Other
Non-guarantor
Subsidiaries
of Noble |
| Consolidating
Adjustments |
| Total |
| Cash flows from operating activities | | | | | | | | | | | | | | | | |
| Net cash provided by (used in) operating activities | | $ | 91,918 |
| | $ | (124,190 | ) | | $ | 81,355 |
| | $ | (278,331 | ) | | $ | (8,697 | ) | | $ | 1,223,801 |
| | $ | — |
| | $ | 985,856 |
|
| Cash flows from investing activities | | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
| Capital expenditures | | — |
| | — |
| | (473,460 | ) | | — |
| | — |
| | (159,813 | ) | | — |
| | (633,273 | ) |
| Proceeds from disposal of assets | | — |
| | — |
| | — |
| | — |
| | — |
| | 23,390 |
| | — |
| | 23,390 |
|
| Net cash used in investing activities | | — |
| | — |
| | (473,460 | ) | | — |
| | — |
| | (136,423 | ) | | — |
| | (609,883 | ) |
| Cash flows from financing activities | | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
| Repayment of long-term debt | | — |
| | — |
| | — |
| | (322,207 | ) | | — |
| | — |
| | — |
| | (322,207 | ) |
| Premiums paid on early repayment of long-term debt | | — |
| | — |
| | — |
| | (1,781 | ) | | — |
| | — |
| | — |
| | (1,781 | ) |
| Dividends paid to noncontrolling interests | | — |
| | — |
| | — |
| | — |
| | — |
| | (61,980 | ) | | — |
| | (61,980 | ) |
| Distributions to parent company, net | | (76,051 | ) | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (76,051 | ) |
| Advances (to) from affiliates | | (15,513 | ) | | 124,190 |
| | 390,122 |
| | 602,320 |
| | 8,697 |
| | (1,109,816 | ) | | — |
| | — |
|
| Net cash provided by (used in) financing activities | | (91,564 | ) | | 124,190 |
| | 390,122 |
| | 278,332 |
| | 8,697 |
| | (1,171,796 | ) | | — |
| | (462,019 | ) |
| Net change in cash and cash equivalents | | 354 |
| | — |
| | (1,983 | ) | | 1 |
| | — |
| | (84,418 | ) | | — |
| | (86,046 | ) |
| Cash and cash equivalents, beginning of period | | 1,627 |
| | — |
| | 2,101 |
| | — |
| | — |
| | 508,067 |
| | — |
| | 511,795 |
|
| Cash and cash equivalents, end of period | | $ | 1,981 |
| | $ | — |
| | $ | 118 |
| | $ | 1 |
| | $ | — |
| | $ | 423,649 |
| | $ | — |
| | $ | 425,749 |
|
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion is intended to assist you in understanding our financial position at SeptemberJune 30, 2017,2021, and our results of operations for the period from February 6 through June 30, 2021, the period from January 1 through February 5, 2021 and three and ninesix months ended SeptemberJune 30, 2017 and 2016.2020. The following discussion should be read in conjunction with the condensed consolidated financial statements and related notes contained in this Quarterly Report on Form 10-Q, and the consolidated financial statements and notes thereto included in the Annual Report on Form 10-K for the year ended December 31, 20162020 filed by Noble Corporation, an exempted company incorporated in the Cayman Islands with limited liability (“Noble” or “Successor”), and Noble Finance Company (formerly known as Noble Corporation), a Cayman Islands company (“Finco”), and our other filings with the US Securities and Exchange Commission (“SEC”).
On July 31, 2020 (the “Petition Date”), our former parent company, Noble Holding Corporation plc (formerly known as Noble Corporation plc), a public limited company incorporated under the laws of England and Wales (“Noble-UK”Legacy Noble” or the “Predecessor”), and certain of its subsidiaries, including Finco, filed voluntary petitions in the United States Bankruptcy Court for the Southern District of Texas (the “Bankruptcy Court”) seeking relief under chapter 11 of title 11 of the United States Code (the “Bankruptcy Code”). On September 4, 2020, the Debtors (as defined herein) filed with the Bankruptcy Court the Joint Plan of Reorganization of Noble Corporation plc and its Debtor Affiliates, which was subsequently amended on October 8, 2020 and October 13, 2020 and modified on November 18, 2020 (as amended, modified or supplemented, the “Plan”), and the related disclosure statement. On September 24, 2020, six additional subsidiaries of Legacy Noble (together with Legacy Noble and its subsidiaries that filed on the Petition Date, as the context requires, the “Debtors”) filed voluntary petitions in the Bankruptcy Court. The chapter 11 proceedings were jointly administered under the caption Noble Corporation plc, et al. (Case No. 20-33826) (the “Chapter 11 Cases”). On November 20, 2020, the Bankruptcy Court entered an order confirming the Plan. In connection with the Chapter 11 Cases and the Plan, on and prior to the Effective Date (as defined herein), Legacy Noble and certain of its subsidiaries effectuated certain restructuring transactions pursuant to which Legacy Noble formed Noble as an indirect wholly-owned subsidiary of Legacy Noble and transferred to Noble substantially all of the subsidiaries and other assets of Legacy Noble. On February 5, 2021 (the “Effective Date”), the Plan became effective in accordance with its terms, the Debtors emerged from the Chapter 11 Cases and Noble became the new parent company. In accordance with the Plan, Legacy Noble and its remaining subsidiary will in due course be wound down and dissolved in accordance with applicable law. The Bankruptcy Court closed the Chapter 11 Cases with respect to all Debtors other than Legacy Noble, pending its wind down.
Noble is the successor issuer to Legacy Noble for purposes of and pursuant to Rule 15d-5 of the Exchange Act. References to the “Company,” “we,” “us” or “our” in this Annual Report are to Noble, together with its consolidated subsidiaries, when referring to periods following the Effective Date, and to Legacy Noble, together with its consolidated subsidiaries, when referring to periods prior to the Effective Date.
Finco was an indirect, wholly-owned subsidiary of Legacy Noble prior to the Effective Date and has been a Cayman Islands company (“Noble-Cayman”).direct, wholly-owned subsidiary of Noble since the Effective Date. Noble’s principal asset is all of the shares of Finco. Finco has no public equity outstanding. The consolidated financial statements of Noble include the accounts of Finco, and Noble conducts substantially all of its business through Finco and its subsidiaries. As such, the terms “Predecessor” and “Successor” also refers to Finco, as the context requires.
Forward-Looking Statements
This Quarterly Report on Form 10-Q includes “forward-looking statements” within the meaning of Section 27A of the U.S.US Securities Act of 1933, as amended, and Section 21E of the U.S.US Securities Exchange Act of 1934, as amended. All statements other than statements of historical facts included in this report or in the documents incorporated by reference, including those regarding the impact of our emergence from bankruptcy on our business and relationships, the global novel strain of coronavirus (“COVID-19”) pandemic and agreements regarding production levels among members of the Organization of Petroleum Exporting Countries (“OPEC”) and other oil and gas producing nations (together with OPEC, “OPEC+”), and any expectations we may have with respect thereto, and those regarding rig demand, peak oil, the offshore drilling market, oil prices, contract backlog, fleet status, our future financial position, business strategy (including our business strategy post-emergence from bankruptcy), impairments, repayment of debt, credit ratings, liquidity, borrowings under ourany credit facilityfacilities or other instruments, sources of funds, future capital expenditures, contract commitments, dayrates, contract commencements, extension or renewals, contract tenders, the outcome of any dispute, litigation, audit or investigation, plans and objectives of management for future operations, foreign currency requirements, results of joint ventures, indemnity and other contract claims, reactivation, refurbishment, conversion and upgrade of rigs, rig acquisitions and dispositions, industry conditions, access to financing, impact of competition, governmental regulations and permitting, availability of labor, worldwide economic conditions, taxes and tax rates, indebtedness covenant compliance, dividends and distributable reserves, timing, benefits or results of acquisitions or dispositions (including the benefits of the Merger (as defined below), and our plans, objectives, expectations and intentions related to the Merger), and timing for compliance with any new regulations are forward-looking statements. When used in this report or in the documents incorporated by reference, the words “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “might,” “plan,” “possible,” “potential,” “predict,” “project,” “should”“should,” “shall,” “will,” “would” and similar expressions are intended to be among the statements that identify forward-looking statements. Although we believe that the expectations reflected in such forward-looking statements are reasonable, we cannot assure you that such expectations will prove to be correct. These forward-looking statements speak only as of the date of this reportQuarterly Report on Form 10-Q and we undertake no obligation to revise or update any forward-looking statement for any reason, except as required by law. We have identified factors, including but not limited to risks and uncertainties relating to our emergence from bankruptcy (including but not limited to our ability to improve our operating structure, financial results and profitability and to maintain relationships with suppliers, customers, employees and other third parties following emergence from bankruptcy), the Merger (including the risk that the Merger disrupts the parties’ current plans and operations as a result of the consummation of the transactions contemplated by the Merger Agreement, the ability to recognize the anticipated benefits of the Merger, which may be affected by, among other things, competition, the ability of the combined company to grow and manage growth profitably, maintain relationships with customers and suppliers and retain its management and key employees, costs related to the Merger, changes in applicable laws or regulations, the possibility that the combined company may be adversely affected by other economic, business, and/or competitive factors and the ability of the combined company to improve its operating structure, financial results and profitability and to maintain relationships with suppliers, customers, employees and other third parties), the effects of public health threats, pandemics and epidemics, such as the ongoing outbreak of COVID-19, and the adverse impact thereof on our business, financial condition and results of operations (including but not limited to our growth, operating costs, supply chain, availability of labor, logistical capabilities, customer demand for our services and industry demand generally, our liquidity, the price of our securities and trading markets with respect thereto, our ability to access capital markets, and the global economy and financial markets generally), the effects of actions by or disputes among OPEC+ members with respect to production levels or other matters related to the price of oil, market conditions, factors affecting the level of activity in the oil and gas industry, supply and demand of drilling rigs, factors affecting the duration of contracts, the actual amount of downtime, factors that reduce applicable dayrates, operating hazards and delays, risks associated with operations outside the U.S.,US, actions by regulatory authorities, credit rating agencies, customers, joint venture partners, contractors, lenders and other third parties, legislation and regulations affecting drilling operations (including as a result of the change in the US presidential administration), compliance with or changes in regulatory requirements, violations of anti-corruption laws, shipyard risk and timing, delays in mobilization of rigs, hurricanes and other weather conditions, and the future price of oil and gas, that could cause actual plans or results to differ materially from those included in any forward-looking statements. These factors include those referenced or described in Part I, Item 1A. “Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2016, our2020, in Part II, Item 1A. “Risk Factors” of this Quarterly ReportsReport on Form 10-Q and in our other filings with the U.S. Securities and Exchange Commission (“SEC”).SEC. We cannot control such risk factors and other uncertainties, and in many cases, we cannot predict the risks and uncertainties that could cause our actual results to differ materially from those indicated by the forward-looking statements. You should consider these risks and uncertainties when you are evaluating us.
Our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act are available free of charge at our website. The SEC maintains an internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC at http://www.sec.gov. Our website address is http://www.noblecorp.com. Investors should also note that we announce material financial information in SEC filings, press releases and public conference calls. Based on guidance from the SEC, we may use the investor relations section of our website to communicate with our investors. It is possible that the financial and other information (including fleet status reports) posted there could be deemed to be material information. Except to the extent explicitly stated herein, documents and information on our website are not incorporated by reference herein.
Executive Overview
We are a leading offshoreprovide contract drilling contractor forservices to the international oil and gas industry. We perform contract drilling servicesindustry with our global fleet of mobile offshore drilling units.As of the filing date of this Quarterly Report on Form 10-Q, with the addition of five floaters from our acquisition of Pacific Drilling Company LLC, our fleet of 24 drilling rigs consisted of 12 floaters and 12 jackups strategically deployed worldwide, focused on both ultra-deepwater and shallow water locations. We typically employ each drilling unit under an individual contract, and many contracts are awarded based upon a competitive bidding process.
We report our contract drilling operations as a single reportable segment, Contract Drilling Services, which reflects how we manage our business. The mobile offshore drilling units comprising our offshore rig fleet operate in a global market for contract drilling services and are often redeployed to different regions due to changing demands of our customers, which consist primarily of large, integrated, independent and government-owned or controlled oil and gas companies throughout the world. As of October 25, 2017, our 28-rig fleet consisted of eight drillships, six semisubmersibles
Recent Events
Emergence from Chapter 11. On February 5, 2021 (the “Effective Date”), Legacy Noble successfully completed its financial restructuring and 14 jackups with drilling operations in strategic markets around the globe.Legacy Noble and its predecessors have been engageddebtor affiliates emerged from the Chapter 11 Cases. As a result, Noble emerged from bankruptcy on the Effective Date with a substantially delevered balance sheet and less than $400.0 million of debt. Noble’s capital structure as of the Effective Date includes a $675.0 million revolving credit facility, of which $190.0 million is drawn as of June 30, 2021, and $216.0 million of our senior secured second lien notes (the “Second Lien Notes”). On the Effective Date, Legacy Noble’s ordinary shares were cancelled and ordinary shares of Noble with a nominal value of $0.00001 per share (“Ordinary Shares”) were issued to Legacy Noble’s former bondholders. Certain former bondholders and former equity holders of Legacy Noble were also issued warrants to purchase shares of the Company. All cash payments made by the Company under the Plan on the Effective Date were funded from cash on hand, proceeds of the Rights Offering, and proceeds from the new revolving credit facility. For additional information regarding the Chapter 11 Cases and our emergence, see “Note 2— Chapter 11 Emergence” to our condensed consolidated financial statements included in Item 1 of Part I of this Quarterly Report on Form 10-Q.
Fresh Start Accounting. In connection with our emergence from bankruptcy, Noble and Finco qualified for and applied fresh start accounting on the contract drillingEffective Date. With the application of oilfresh start accounting, we allocated the reorganization value to our individual assets and gas wells since 1921.
Outlook
liabilities based on their estimated fair values. The challenging business environmentEffective Date fair values of our assets and liabilities differed materially from their recorded values as reflected on the historical balance sheets. The application of fresh start accounting resulted in new reporting entities with no beginning retained earnings or accumulated deficit. Accordingly, our financial statements and notes thereto after the Effective Date are not comparable to our financial statements and notes to prior to that date. To facilitate our discussion and analysis of our financial condition and results of operations herein, we refer to the reorganized company as the “Successor” for offshore drillers continued throughperiods subsequent to the first nine months of 2017. An industry-wide rig supply imbalance has remained in place, as curtailed offshore spending by customers contributed to a growing number of rigs without follow-on drilling programs as contracts expire. In addition, newbuild rigs orderedEffective Date, and “Predecessor” for periods prior to the decline in industry activity continueEffective Date. Furthermore, our presentations herein include a “black line” division to exit shipyards, while the delivery of other newbuild orders have been delayed into the future and are adding to the supply imbalance. Since 2015 the industry has experienced a higher level of fleet attrition, as rigs are removed from the global supply due to a number of factors, including advanced service life, high maintenance and reactivation costs and limited customer appeal. However, the capacity imbalance remains. In addition, our customers have adopted a cautious approach to offshore spending as Brent crude oil prices declined from above $100 per barrel in mid-2014 to approximately $30 per barrel in early 2016 before improving to approximately $52 per barrel at October 25, 2017. Although crude oil prices have been less volatile over the first nine months of 2017, we expect that the offshore drilling programs of operators will remain curtailed, until higher crude oil prices are sustained and volatility is reduced. Until then, a further decline in rig utilization and dayrates is possible.
We expect the business environment for the remainder of 2017 and into 2018 to remain challenged. The uncertainty of the viability and length of reductions in production agreed to by the Organization of Petroleum Exporting Countries (“OPEC”), the incremental production capacity in non-OPEC countries, including growing production from U.S. shale activity, the current U.S. political environment and fluid sentiment in oil markets are contributing to an uncertain oil price environment, leading to uncertainty in our customers’ production spending plans. However, steady demand growth,delineate the lack of production investmentcomparability between the Predecessor and Successor.
Merger with Pacific Drilling. On March 25, 2021, Noble entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Pacific Drilling Company LLC (“Pacific Drilling”), pursuant to which Noble acquired Pacific Drilling in various countries aroundan all-stock transaction (the “Merger”) on April 15, 2021. Pursuant to the worldterms and the production limits agreed to by OPEC have helped to establish market conditions supporting somewhat higher sustained crude prices recently. In general, recent contract awards have been subject to an extremely competitive bidding process. As a result, the contracts have been for dayrates that are substantially lower than rates were for the same class of rigs before this period of imbalance. We cannot give any assurances as to when conditionsset forth in the offshore drilling market will improve, or whenMerger Agreement, (a) each membership interest in Pacific Drilling was converted into the oversupplyright to receive 6.366 Ordinary Shares and (b) each of available drilling rigs will end. While current market conditions persist, we will continue to focus on fleet utilization improvements, cost control initiatives and financial discipline, including preserving liquidity. The current business environment could leadPacific Drilling’s warrants outstanding immediately prior to the Company stacking or retiring additional drilling rigs.
While we cannot predict the future level of demand or dayrates for our services, or future conditions in the offshore contract drilling industry, we believe in the long-term fundamentals for the industry and believe we are strategically well positioned to take advantage of future market upcycles due to our modern fleet of high-specification rigs, substantial backlog and strong operational capability. Also, we expect the ultimate market recovery to benefit from any sustained under-investment by customers during this current phaseeffective time of the market cycle. Acceleration in customers' offshore spending, in combination with further fleet attrition, should contributeMerger was converted into the right to a balanced rig supply over time.
Results and Strategy
Our business strategy focuses on a balanced, high-specification fleet of both floating and jackup rigs and the deployment of our drilling rigs in important oil and gas basins around the world.
Over the past five years, we have expanded our drilling fleet through our newbuild program. We took delivery of our last remaining newbuild, the heavy-duty, harsh environment jackup, Noble Lloyd Noble, in July 2016. The Noble Lloyd Noble commenced operations in November 2016 under a four-year contract in the North Sea. Although we plan to prioritize capital preservation and liquidity based on current market conditions, from time to time we will also continue to evaluate opportunities to enhance our fleet, particularly focusing on higher specification rigs, to execute the increasingly complex drilling programs required by our customers.
Spin-off of Paragon Offshore plc
On August 1, 2014, Noble-UK completed the separation and spin-off of a majority of its standard specification offshore drilling business (the “Spin-off”) through a pro rata distribution of all of the ordinary shares of its wholly-owned subsidiary, Paragon Offshore, to the holders of Noble’s ordinary shares.
In February 2016, Paragon Offshore sought approval of a pre-negotiated plan of reorganization (the “Prior Plan”) by filing for voluntary relief under Chapter 11 of the United States Bankruptcy Code.receive 1.553 Ordinary Shares. As part of the Prior Plan, we entered into a settlement agreement with Paragon Offshore (the “Settlement Agreement”) under which, in exchange for a fulltransaction, Pacific Drilling’s equity holders received 16.6 million Ordinary Shares, or approximately 24.9% of the outstanding Ordinary Shares and unconditional release of any claims by Paragon Offshore inPenny Warrants (as defined herein) at closing. In connection with this acquisition, the Spin-off (including fraudulent conveyance claims that could be brought on behalfCompany acquired seven floaters and subsequently sold two floaters in June 2021 for net proceeds of Paragon Offshore’s creditors), we agreed$29.7 million.
The Merger provides incremental capacity to provide certain tax bondingserve existing customers in the floater market, broadens our customer relationships and facilitates Noble's reentry into the growing West Africa and Mexico as well as assume certain tax liabilities and the administration of Mexican tax claims for a specified number of years. The bonding to be provided by Noble-UK was a key benefit to Paragon Offshoreregions. Noble disposed of the Settlement Agreement, which was subject Pacific Bora and Pacific Mistral rigs in June 2021. As of June 30, 2021, Noble owns and operates a high specification fleet of 24 rigs, with 12 floaters and 12 jackups. For additional information, see “Note 4— Acquisitions” to bankruptcy court confirmationour condensed consolidated financial statements.
Appointment of new director. On April 19, 2021, the board of directors of Noble appointed Paul Aronzon to serve as parta director. Mr. Aronzon will serve as a director until the next shareholder vote at the annual general meeting of a bankruptcy plan. The Prior Plan was rejected by the bankruptcy court in October 2016.
In April 2017, Paragon Offshore filed an updated disclosure statement and a revised plan of reorganization (the “New Plan”) in its bankruptcy proceeding. Under the New Plan, including Paragon Offshore’s revised business plan, Paragon Offshore no longer needed the Mexican tax bonding that Noble-UK was to provide under the Settlement Agreement. As a result, the Settlement Agreement was no longer applicable to the ongoing business of Paragon Offshore. Consequently, Paragon Offshore abandoned the Settlement Agreement as partshareholders of the New Plan, and the Settlement Agreement was terminated atCompany in 2022. At the time of his appointment, Mr. Aronzon was named to serve on the filingAudit and Finance Committees of the New Plan.Board.
NYSE Listing. On May 2, 2017, Paragon Offshore announced that it had reached an agreement in principle with both its secured and unsecured creditors to reviseJune 9, 2021, our Ordinary Shares began trading on the New Plan to, among other things, createYork Stock Exchange under the symbol “NE.”
Market Outlook
The offshore drilling industry remains highly competitive. We believe the convergence of events in 2020 and fund2021, including the ongoing impacts from the COVID-19 pandemic, have lengthened an already challenging and slow recovery in our industry. Despite these challenges and demand projections, we believe that oil and gas demand will rebalance and oil and gas will remain a $10.0 million litigation trust to pursue litigation against us. On June 7, 2017,significant portion of the revised New Plan was approved by the bankruptcy court and Paragon Offshore emerged from bankruptcy on July 18, 2017.
world’s energy mix. We expect Paragon Offshore or its creditorsthat the return to stable oil demand and prices coupled with the continued attrition of rigs in the global offshore fleet will usebring improved market conditions for our services.
After completing the litigation trustMerger with Pacific Drilling, Noble has a fleet of 24 rigs, consisting of 12 jackups and 12 floaters. Our fleet is among the youngest, most technically advanced, and versatile fleets in the industry and is well positioned to pursue claims against us relatingcompete as market dynamics improve. Our fleet consists predominantly of technologically advanced units, equipped with sophisticated systems and components prepared to the Spin-off, including alleged fraudulent conveyance claims. We continue to believe that Paragon Offshore, at the time of the Spin-off, was properly funded, solventexecute our customers’ increasingly complicated offshore drilling programs safely and had appropriate liquidity and that any fraudulent conveyance claim or other claim related to the Spin-off that may be brought by Paragon Offshore or its creditors, would be without merit and would be contested vigorously by us. If litigation is instituted against Noble and we are unsuccessful in defending such claims, it could have a material adverse effect on our financial position, results of operations and/or cash flows.
Prior to the completion of the Spin-off, Noble-UK and Paragon Offshore entered into a series of agreements to effect the separation and Spin-off and govern the relationship between the parties after the Spin-off (the "Separation Agreements"), including the Master Separation Agreement (the "MSA") and the Tax Sharing Agreement (the "TSA").
As part of its final bankruptcy plan, Paragon Offshore rejected the Separation Agreements. Accordingly, the indemnity obligations that Paragon Offshore potentially would have owed us under the Separation Agreements have now terminated, including indemnities arising under the MSA and the TSA in respect of obligations related to Paragon Offshore’s business that were incurred through Noble-retained entities prior to the Spin-off. Likewise, any potential indemnity obligations that we would have owed Paragon Offshore under the Separation Agreements, including those under the MSA and the TSA in respect of Noble-UK’s business that was conducted prior to the Spin-off through Paragon Offshore-retained entities, are now also extinguished. In the absence of the Separation Agreements, liabilities relating to the respective parties will be borne by the owner of the legal entity or asset at issue and neither party will lookwith greater efficiency, contributing to an allocation based onoverall reduction of our carbon footprint. We remain committed to safely and efficiently serving the historic relationshipneeds of an entity or asset to oneour customers globally. The performance of certain market indicators this year signals the party’s business, as had been the case under the Separation Agreements.
The rejection and ultimate termination of the indemnity and related obligations under the Separation Agreements has resulted in a number of accounting charges and benefits for the nine months September 30, 2017, and such termination may continue to affect usindustry could be in the future as liabilities arise for which we would have been indemnified by Paragon Offshore or would have had to indemnify Paragon Offshore. We do not expect that, overall, the rejectionearly stages of the Separation Agreements by Paragon Offshore will haverecovery; however, confirmation remains dependent on sustaining this improvement over a material adverse effect on our financial condition or liquidity. However, any loss we experience with respect to which we would have been able to secure indemnification from Paragon Offshore under one or more of the Separation Agreements could have an adverse impact on our results of operations in any period, which impact may be material depending on our results of operations during this down-cycle.longer time horizon.
During the nine months ended September 30, 2017, we recognized net charges of $15.9 million, with a non-cash loss of $1.5 million recorded in "Net loss from discontinued operations, net of tax" on our Condensed Consolidated Statement of Operations relating to Paragon Offshore's emergence from bankruptcy.
For more information on the Separation Agreements, see our Annual Report on Form 10-K for the year ended December 31, 2016.
Contract Drilling Services Backlog
We maintain a backlog of commitments for contract drilling services. Our contract drilling services backlog reflects estimated future revenues attributable to signed drilling contracts. While backlog did not include any letters of intent as of SeptemberJune 30, 2017,2021, in the past we have included in backlog certain letters of intent that we expect to result in binding drilling contracts.
We calculate backlog for any given unit and period by multiplying the full contractual operating dayrate for such unit by the number of days remaining in the period, and forinclude certain assumptions based on the three rigs contracted with Royal Dutch Shell plc (“Shell”) mentioned below, utilizeterms of certain contractual arrangements, discussed in the idle period and floor rates as described in Footnote (4)notes to the backlog table below. The reported contract drilling services backlog does not include amounts representing revenues for mobilization, demobilization and contract preparation, which are not expected to be significant to our contract drilling services revenues, amounts constituting reimbursables from customers or amounts attributable to uncommitted option periods under drilling contracts or letters of intent. Backlog herein also has not been adjusted for the non-cash amortization related to favorable customer contract intangibles which were recognized on the Effective Date.
The table below presents as of September 30, 2017, the amount of our contract drilling services backlog as of June 30, 2021, and the percent of available operating days committed for the periods indicated:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Year Ending December 31, |
| | Total | | 2021 (1) | | 2022 | | 2023 | | 2024 | | 2025 - 2027 |
| | (In thousands) |
| Contract Drilling Services Backlog | | | | | | | | | | | | |
Floaters (2)(3) | | $ | 1,160,215 | | | $ | 317,950 | | | $ | 487,380 | | | $ | 140,659 | | | $ | 71,279 | | | $ | 142,947 | |
| Jackups | | 357,647 | | | 145,833 | | | 177,824 | | | 33,990 | | | — | | | — | |
| Total | | $ | 1,517,862 | | | $ | 463,783 | | | $ | 665,204 | | | $ | 174,649 | | | $ | 71,279 | | | $ | 142,947 | |
Percent of Available Days Committed (4) | | | | | | | | | | | | |
| Floaters | | | | 71 | % | | 52 | % | | 14 | % | | 8 | % | | 6 | % |
| Jackups | | | | 72 | % | | 39 | % | | 6 | % | | — | % | | — | % |
| Total | | | | 72 | % | | 45 | % | | 10 | % | | 4 | % | | 3 | % |
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | Year Ending December 31, |
| | | Total | | 2017 (1) | | 2018 | | 2019 | | 2020 | | 2021-2023 |
| | | (In thousands) |
| Contract Drilling Services Backlog | | | | | | | | | | | | |
Semisubmersibles/Drillships (4)(6) | | $ | 2,001,151 |
| | $ | 133,774 |
| | $ | 490,047 |
| | $ | 400,140 |
| | $ | 381,560 |
| | $ | 595,630 |
|
Jackups (3) | | 1,184,444 |
| | 126,480 |
| | 373,172 |
| | 302,988 |
| | 222,963 |
| | 158,841 |
|
Total (2) | | $ | 3,185,595 |
| | $ | 260,254 |
| | $ | 863,219 |
| | $ | 703,128 |
| | $ | 604,523 |
| | $ | 754,471 |
|
Percent of Available Days Committed (5) | | | | | | | | | | | | |
| Semisubmersibles/Drillships | | | | 36 | % | | 34 | % | | 30 | % | | 29 | % | | 14 | % |
| Jackups | | | | 73 | % | | 46 | % | | 28 | % | | 19 | % | | 7 | % |
| Total | | | | 54 | % | | 40 | % | | 29 | % | | 24 | % | | 10 | % |
| |
(1)(2)Two of our long-term drilling contracts with Royal Dutch Shell plc (“Shell”), the Noble Globetrotter I and Noble Globetrotter II, contain a dayrate adjustment mechanism that utilizes an average of market rates that match a set of distinct technical attributes and is subject to a modest discount, beginning on the fifth-year anniversary of the contract and continuing every six months thereafter. Each of the contracts now has a contractual dayrate floor of $275,000 per day. Once the dayrate adjustment mechanism becomes effective and following any idle periods, the dayrate for these rigs will not be lower than the higher of (i) the contractual dayrate floor or (ii) the market rate as calculated under the adjustment mechanism. The impact to contract backlog from these amendments has been reflected in the table above and the backlog calculation assumes that, after any idle period at the contractual stacking rate, each rig will work at its respective dayrate floor for the remaining contract term. (3)Noble entered into a multi-year Commercial Enabling Agreement (the “CEA”) with Exxon Mobil Corporation (“ExxonMobil”) in February 2020. Under the CEA, dayrates earned by each rig will be updated at least twice per year to the projected market rate at the time the new rate goes into effect, subject to a scale-based discount and a performance bonus that appropriately aligns the interests of Noble and ExxonMobil. Under the CEA, the table above includes awarded and remaining term of five and a half years related to the Noble Tom Madden and one and a half years to each of the Noble Bob Douglas, Noble Don Taylor and Noble Sam Croft. Under the CEA, ExxonMobil may reassign term among rigs. The aforementioned additional backlog included in the table above for periods where the rate is yet to be determined is estimated by using the most recently negotiated CEA rate. (4)Percent of available days committed is calculated by dividing the total number of days our rigs are operating under contract for such period by the product of the number of our rigs and the number of calendar days in such period. | Represents a three-month period beginning October 1, 2017. |
| |
(2)
| Some of our drilling contracts provide the customers with certain early termination rights and, in limited cases, those termination rights require minimal or no notice and financial penalties. Since September 30, 2017, no new notifications of contract terminations have been received. |
| |
(3)
| Our Saudi Arabian Oil Company ("Saudi Aramco") contract rates for the Noble Joe Beall and the Noble Gene House were adjusted downward in 2016. We expect the contract rates to be in the general range of the amended rates in 2016 through the end of each respective contract. Backlog for these contracts has been prepared assuming the reduced rates from 2016 apply for the remainder of the contract.
|
| |
(4)
| As previously reported, three of our long-term drilling contracts with Shell, the Noble Bully II, Noble Globetrotter I and Noble Globetrotter II contain a dayrate adjustment mechanism that utilizes an average of market rates that match a set of distinct technical attributes and is subject to a modest discount, beginning on the fifth year anniversary of the contract and continuing every six months thereafter. On December 12, 2016, we amended those drilling contracts with Shell. As a result of the amendments, each of the contracts now has a contractual dayrate floor. The contract amendments for the Noble Globetrotter I and Noble Globetrotter II provide a dayrate floor of $275,000 per day. The Noble Bully II contract contains a dayrate floor of $200,000 per day plus daily operating expenses. The amendment also provided Shell the right to idle the Noble Bully II for up to one year and the Noble Globetrotter II for up to two years, each at a special stacking rate. Shell has exercised its right and, beginning late December 2016, we idled the Noble Globetrotter II at a rate of $185,000 per day. The Noble Bully II was idled at a rate of $200,000 per day, effective April 3, 2017. Once the dayrate adjustment mechanism becomes effective and following any idle periods, the dayrate for these rigs will not be lower than the higher of (i) the contractual dayrate floor or (ii) the market rate as calculated under the adjustment mechanism. The impact to contract backlog from these amendments has been reflected in the table above and the backlog calculation assumes that, after any idle period at the contractual stacking rate, each rig will work at their respective dayrate floor for the remaining contract term.
|
| |
(5)
| Percent of available days committed is calculated by dividing the total number of days our rigs are operating under contract for such period by the product of the number of our rigs and the number of calendar days in such period. |
| |
(6)
| Noble and a subsidiary of Shell are involved in joint ventures that own and operate both the Noble Bully I and the Noble Bully II. Pursuant to these agreements, each party has an equal 50 percent share in both vessels. As of September 30, 2017, the combined amount of backlog for these rigs totaled $534.0 million, all of which is included in backlog. Noble’s proportional interest in the backlog for these rigs totaled $267.0 million.
|
The amount of actual revenues earned and the actual periods during which revenues are earned may be materially different than the backlog amounts and backlog periods presented in the table above due to various factors, including, but not limited to, the impact of the COVID-19 pandemic and related mitigation efforts on the demand for oil, current oversupply of oil, shipyard and maintenance projects, unplanned downtime, the operation of market benchmarks for dayrate resets, achievement of bonuses, weather conditions, reduced standby or mobilization rates and other factors that result in applicable dayrates lower than the full contractual operating dayrate. In addition, amounts included in the backlog may change because drilling contracts may be varied or modified by mutual consent or customers may exercise early termination rights contained in some of our drilling contracts or decline to enter into a drilling contract after executing a letter of intent. As a result, our backlog as of any particular date may not be indicative of our actual operating results for the periods for which the backlog is calculated. See Part I, Item
1A, “Risk Factors – We can provide no assurance that ourOur current backlog of contract drilling revenue willmay not be ultimately realized” in our Annual Report on Form 10-K for the year ended December 31, 2016.2020.
As of SeptemberJune 30, 2017,2021, ExxonMobil, Shell and Saudi Aramco and Statoil ASAArabian Oil Company represented approximately 56.946.5 percent, 18.621.4 percent and 14.612.1 percent of our backlog, respectively.
Strategy and Results of Operations
Our business strategy focuses on a high-specification fleet of both floating and jackup rigs and the deployment of our drilling rigs in established and emerging offshore oil and gas basins around the world. We emphasize safe operations, environmental stewardship, and superior performance through a structured management system, the employment of qualified and well-trained crews and onshore support staff, the care of our surroundings and the neighboring communities where we operate, and other activities advancing our environmental sustainability, social responsibility, and good governance. We also manage rig operating costs through the implementation and continuous improvement of innovative systems and processes, which includes the use of data analytics and predictive maintenance technology. ForOur floating and jackup drilling fleet is among the youngest, most modern and versatile in the industry, with the majority of our rigs having been delivered since 2011. Our fleet consists predominately of technologically advanced units, equipped with sophisticated systems and components prepared to execute our customers’ increasingly complicated offshore drilling programs safely and with greater efficiency, contributing to an overall reduction of our carbon footprint. We do not have any newbuild rigs under construction and we have also retired, sold or otherwise fully impaired 20 drilling rigs since late 2014, due in part to advanced service lives, high cost of operation and limited customer appeal. Market conditions could lead to us stacking, retiring or otherwise disposing of additional rigs.
We continue to prioritize capital preservation and liquidity in light of the challenging market conditions. However, we will also continue to evaluate opportunities to enhance our fleet of floating and jackup rigs, particularly focusing on higher specification rigs, to meet the demands of increasingly complex drilling programs required by our customers.
Results for the Three Months Ended SeptemberJune 30, 20172021 and 20162020
Net loss from continuing operations attributable to Noble-UK for the three months ended September 30, 2017 was $96.8 million, or $0.40 per diluted share, on operating revenues of $266.2 million, compared to net income from continuing operations for the three months ended September 30, 2016 of $55.1 million, or $0.23 per diluted share, on operating revenues of $385.2 million.
As a result of Noble-UK conducting all of its business through Noble-Cayman and its subsidiaries, the financial position and results of operations for Noble-Cayman, and the reasons for material changes in the amount of revenue and expense items between September 30, 2017 and September 30, 2016, would be the same as the information presented below regarding Noble-UK in all material respects, with the exception of operating income. During the three months ended September 30, 2017 and 2016, Noble-Cayman's operating loss was $6.9 million lower and operating income was $4.9 million higher, respectively, than that of Noble-UK. The operating income difference is primarily a result of executive costs directly attributable to Noble-UK for operations support and stewardship related services.
Rig Utilization,Key Operating Days and Average DayratesMetrics
Operating results for our contract drilling services segment are dependent on three primary metrics: operating days, dayrates and operating costs. We also track rig utilization, which is a function of operating days and the number of rigs in our fleet. For more information on operating costs, see “—Contract Drilling Services” below.
The COVID-19 pandemic and related mitigation efforts, coupled with production level disagreements among OPEC+ members along with the energy transition, have had, and could continue to have, a material negative impact on our business and results of operations. These conditions had significant adverse consequences for the financial condition of our customers, and uncertainty about the financial viability of offshore projects, which resulted in and could result in contract terminations and customers seeking to re-negotiate contracts to secure price reductions. Additionally, restrictions on travel have resulted in delays in moving personnel, materials and equipment of our own and of our customers and suppliers, to and from our drilling rigs, which increases rig downtime and may result in decreases in or loss of dayrates. The occurrence of any such events with respect to our customers, contracts or suppliers will reduce our contract backlog, average dayrates and rig utilization. The extent of such impact will depend on future developments, which we cannot predict at this time.
The following table presents the average rig utilization, operating days and average dayrates for our rig fleet for the periods indicated:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Average Rig Utilization (1) | | Operating Days (2) | | | | Average Dayrates (2) | | |
| | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | Successor | | | Predecessor | | Successor | | | Predecessor | | | | Successor | | | Predecessor | | |
| | Three Months Ended
June 30, 2021 | | | Three Months Ended
June 30, 2020 | | Three Months Ended
June 30, 2021 | | | Three Months Ended
June 30, 2020 | | | | Three Months Ended
June 30, 2021 | | | Three Months Ended
June 30, 2020 | | |
| Floaters | | 68 | % | | | 53 | % | | 690 | | | | 584 | | | | | 216,663 | | | | 196,489 | | | |
| Jackups | | 69 | % | | | 65 | % | | 752 | | | | 709 | | | | | 85,938 | | | | 148,781 | | | |
| Total | | 68 | % | | | 59 | % | | 1,442 | | | | 1,293 | | | | | $ | 148,509 | | | | $ | 170,325 | | | |
(1)We define utilization for a specific period as the total number of days our rigs are operating under contract, divided by the product of the total number of our rigs, including cold stacked rigs, and the number of calendar days in such period. Information reflects our policy of reporting on the basis of the number of available rigs in our fleet, excluding newbuild rigs under construction.
(2)An operating day is defined as a calendar day during which a rig operated under a drilling contract. We define average dayrates as revenue from contract drilling services earned per operating day. Average dayrates have not been adjusted for the non-cash amortization related to favorable customer contract intangibles.
Net income for the three months ended SeptemberJune 30, 20172021 was $20.4 million or $0.30 per diluted share, on operating revenues of $219.3 million compared to a net loss for the three months ended June 30, 2020 of $42.2 million, or $(0.17) per diluted share, on operating revenues of $237.9 million.
As a result of Noble conducting substantially all of its business through Finco and 2016:
|
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Average Rig Utilization (1) | | Operating Days (2) | | Average Dayrates (3) |
| | | Three Months Ended
September 30, | | Three Months Ended
September 30, | | | | Three Months Ended
September 30, | | |
| | | 2017 | | 2016 | | 2017 | | 2016 | | % Change | | 2017 | | 2016 | | % Change |
| Jackups | | 81 | % | | 80 | % | | 1,043 |
| | 954 |
| | 9 | % | | $ | 127,163 |
| | $ | 109,387 |
| | 16 | % |
| Semisubmersibles | | 17 | % | | 13 | % | | 92 |
| | 92 |
| | — | % | | 104,028 |
| | 293,269 |
| | (65 | )% |
| Drillships | | 56 | % | | 70 | % | | 410 |
| | 517 |
| | (21 | )% | | 286,819 |
| | 467,949 |
| | (39 | )% |
| Total | | 60 | % | | 59 | % | | 1,545 |
| | 1,563 |
| | (1 | )% | | $ | 168,127 |
| | $ | 238,869 |
| | (30 | )% |
| |
(1)
| We define utilization for a specific period as the total number of days our rigs are operating under contract, divided by the product of the total number of our rigs, including cold stacked rigs, and the number of calendar days in suchits subsidiaries, the financial position and results of operations for Finco, and the reasons for material changes in the amount of revenue and expense items for the three months ended June 30, 2021 and June 30, 2020, would be the same as the information presented below regarding Noble in all material respects, with the exception of operating income (loss) and the gain on bargain purchase. For the three months ended June 30, 2021 and June 30, 2020, Finco’s operating loss was $15.4 million and $66.8 million lower, respectively, than that of Noble. The operating loss difference is primarily a result of expenses related to corporate legal costs and administration and a $46.5 million charge related to litigation in the Predecessor period. Information reflects our policy of reporting on the basis of the number of available rigs in our fleet, excluding newbuild rigs under construction. |
| |
(2)
| Information reflects the number of days that our rigs were operating under contract. |
| |
(3)
| Average dayrates for the three months ended September 30, 2016, include a loss of $5.2 million relating to the termination date valuation of certain contingent payments for the Noble Sam Croft and the Noble Tom Madden contract settlement and termination by and among Freeport-McMoRan Inc. (“FCX”), Freeport-McMoRan Oil & Gas LLC and one of our subsidiaries (“FCX Settlement”). This loss had a negative impact on drillship average dayrates.
|
Contract Drilling Services
The following table presents the operating results for our contract drilling services segment for the three months ended September 30, 2017 and 2016periods indicated (dollars in thousands):
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | |
| | | | | | | | | |
| | Successor | | | Predecessor | | | | |
| | Three Months Ended
June 30, 2021 | | | Three Months Ended
June 30, 2020 | | | | |
| Operating revenues: | | | | | | | | | |
| Contract drilling services | | $ | 199,897 | | | | $ | 220,141 | | | | | |
Reimbursables and other (1) | | 19,446 | | | | 17,777 | | | | | |
| | 219,343 | | | | 237,918 | | | | | |
| Operating costs and expenses: | | | | | | | | | |
| Contract drilling services | | 188,712 | | | | 144,154 | | | | | |
Reimbursables (1) | | 18,071 | | | | 16,334 | | | | | |
| Depreciation and amortization | | 25,339 | | | | 89,365 | | | | | |
| General and administrative | | 25,030 | | | | 73,003 | | | | | |
| Pre-petition charges | | — | | | | 10,515 | | | | | |
| Merger and integration costs | | 6,740 | | | | — | | | | | |
| | | | | | | | | |
| | 263,892 | | | | 333,371 | | | | | |
| Operating loss | | $ | (44,549) | | | | $ | (95,453) | | | | | |
|
| | | | | | | | | | | | | | | |
| | | Three Months Ended
September 30, | | Change |
| | | 2017 | | 2016 | | $ | | % |
| Operating revenues: | | | | | | | | |
| Contract drilling services | | $ | 259,740 |
| | $ | 373,257 |
| | $ | (113,517 | ) | | (31 | )% |
Reimbursables and other (1) | | 6,472 |
| | 11,896 |
| | (5,424 | ) | | (46 | )% |
| | | $ | 266,212 |
| | $ | 385,153 |
| | $ | (118,941 | ) | | (31 | )% |
| Operating costs and expenses: | | | | | | | | |
| Contract drilling services | | $ | 165,028 |
| | $ | 207,204 |
| | $ | (42,176 | ) | | (20 | )% |
Reimbursables (1) | | 3,834 |
| | 9,142 |
| | (5,308 | ) | | (58 | )% |
| Depreciation and amortization | | 131,819 |
| | 149,398 |
| | (17,579 | ) | | (12 | )% |
| General and administrative | | 15,331 |
| | 15,773 |
| | (442 | ) | | (3 | )% |
| | | 316,012 |
| | 381,517 |
| | (65,505 | ) | | (17 | )% |
| Operating income (loss) | | $ | (49,800 | ) | | $ | 3,636 |
| | $ | (53,436 | ) | | (1,470 | )% |
| |
(1)
| We record reimbursements from customers for out-of-pocket expenses as operating revenues and the related direct costs as operating expenses. Changes in the amount of these reimbursables generally do not have a material effect on our financial position, results of operations or cash flows. |
Operating Revenues. Revenues
During the three months ended June 30, 2021, contract drilling services revenues totaled $135.3 million for our floaters and $64.6 million for our jackups. Nine of our 12 floaters were contracted of which eight operated the majority of the period and 10 of our 12 jackups were contracted of which eight operated the majority of the period. The $113.5 million declinePacific Santa Ana and Pacific Sharav were acquired in the Merger and the Noble Scott Marks returned to operations in early June 2021 following the end of its suspension which began in May 2020. In April 2021, the Noble Sam Croft began its contract in Guyana, bringing our presence there to four rigs. The other contracted rigs not operating the full period included the Noble Clyde Boudreaux, Noble Tom Prosser and NobleHans Deul, which commenced new contracts in late June 2021, early May 2021 and early April 2021, respectively. The Noble Sam Hartley was warm stacked in early May 2021 and the Noble Lloyd Noble was in the shipyard preparing for its new contract. Additionally, contract drilling services revenues for the period included: (i) a reduction of $14.3 million related to the non-cash amortization related to customer contract intangibles which were recognized on the Effective Date and (ii) lower amortizations for mobilization, pre-contract and capital recovery revenues.
During the three months ended SeptemberJune 30, 2017 as compared to the same period of 2016 was composed of a $109.3 million decline in average dayrates and a $4.2 million decline in operating days. The2020, contract drilling services revenues decline was primarilytotaled $114.7 million for our floaters with six floaters contracted and operating the entire period and $105.5 million for our jackups with seven jackups contracted and operating a majority the period. The Noble Tom Prosser and Noble Tom Madden were placed on special standby rates during this period due to our drillshipthe effects of the COVID-19 pandemic. Rigs that were warm stacked for a part of or the entire three months included the Noble Hans Duel, Noble Houston Colbert, Noble Sam Hartley and semisubmersible fleet, which experienced declines in revenues of $124.5 millionNoble Sam Turner.
Operating Costs and $17.4 million, respectively, and was partially offset by revenue increases in our jackup fleet of $28.4 million.Expenses
The $124.5 million revenue decline in our drillship fleet consists of a $74.2 million decline in average dayrates and a $50.3 million decline in operating days forDuring the three months ended SeptemberJune 30, 2017 compared to2021, contract drilling services costs, which includes our local administrative and operations support, totaled $188.7 million. Nine of our 12 floaters were contracted, of which eight operated the samemajority of the period and 10 of 2016. The declines in average dayrates and operating daysour 12 jackups were contracted, of which eight operated the majority of the period. Operating costs increased within the period, primarily related toas a result of the Noble Bully I and the Noble Bob Douglas, whichnew rigs that were idle during the current period but operated during the same period of 2016.
The $17.4 million decline in semisubmersible revenues was due to dayrate decreases on the Noble Paul Romano. The $28.4 million increase in revenuesacquired in the jackup fleet is primarily attributable to an increase in revenues of $18.6 million associated with favorable dayrate changes acrossMerger. The period also included costs for the jackup fleet. The remaining $9.8 million increase was due to a higher number of operating days on the Noble Lloyd Noble preparing for its new contract in Norway that starts in the third quarter of 2021.The Noble Houston Colbert and Noble Sam Hartley were warm stacked for the entire period and the Noble Alan Hay, which were idle during the same period of 2016.in early May 2021, respectively.
Operating Costs and Expenses. Contract drilling services operating costs decreased $42.2 million forDuring the three months ended SeptemberJune 30, 2017 as compared to2020, contract drilling services costs totaled $144.2 million. Operating costs for this period included 13 rigs which were contracted and operating a majority of the same period of 2016. Of the decrease, $21.1 million was duequarter. In addition, this quarter included costs related to rigs that operatedwere operating or stacked and ultimately retired and sold in the second half of 2020, including the Noble Bully I, Noble Bully II, Noble Danny Adkins, Noble Jim Day, Noble Joe Beall and Noble Paul Romano. The Noble Tom Prosser and Noble Tom Madden were placed on special standby rates during this period due to the third quarter of 2016 being idle during the same quarter of 2017. An additional $21.7 millioneffects of the decrease was due to continuing cost control measures duringCOVID-19 pandemic. Rigs that were warm stacked for a part of or the period. The cost control measures yielded reductions in laborentire three months included the Noble Hans Duel, Noble Houston Colbert, Noble Sam Hartley and training related costs of $11.6 million, repairNoble Sam Turner.
Depreciation and maintenance costs of $6.2 million, operations support costs of $4.8 million and rig mobilization costs of $2.6 million. These decreases were partially offset by cost increases of $10.9 million for the Noble Lloyd Noble, Noble Mick O’Brien and Noble Regina Allen whichreturned to work after being idle during the same period of 2016.
amortization.Depreciation and amortization decreased $17.6totaled $25.3 million for the three months ended September 30, 2017 as compared to the same period of 2016. The decline was due to the effect of rig retirements and impairments during 2016, partially offset by the Noble Lloyd Noble entering into service during November 2016.
Other Income and Expenses
General and administrative expenses. General and administrative expenses decreased $0.4$89.4 million during the three months ended SeptemberJune 30, 2017 as compared to2021 and the samethree months ended June 30, 2020, respectively. Depreciation during the Successor period was impacted by the fair value remeasurement of 2016, primarilyour rigs as a result of professional fees.the implementation of fresh start accounting on the Effective Date and has increased due to the rigs acquired from the Merger. Depreciation during the Predecessor period declined due to impairments of assets recognized during the first quarter of 2020.
Interest Expense, net of amount capitalized. Interest expense increased $20.3General and Administrative Expenses. General and administrative expenses totaled $25.0 million and $73.0 million during the three months ended SeptemberJune 30, 2017 as compared to the same period of 2016. This increase was primarily due to the interest incurred during the current quarter on senior notes issued in December 2016, the absence of capitalized interest and an increase in interest rates on certain of our senior notes due to the downgrading of
our credit rating. These increases were partially offset by the retirement of a portion of our Senior Notes due 2020, 2021 and 2022 as a result of two different tender offers (see Note 6— Debt for additional information) and the repayment of our $300.0 million 2.50% Senior Notes in March 2017.
Income Tax Benefit. Our income tax benefit increased $18.6 million for the three months ended SeptemberJune 30, 20172020, respectively. The Successor period included $4.7 million of tax professional fees incurred in connection with successfully obtaining a tax refund. The Predecessor period included $54.0 million of charges related to litigation that has been settled.
Pre-Petition Charges. Noble incurred $10.5 million of pre-petition charges during the three months ended June 30, 2020. These costs relate to attorneys, financial advisors and other professional fees incurred in connection with the Chapter 11 Cases.
Merger and integration costs. Noble incurred $6.7 million of merger and integration costs in connection with the Merger during the three months ended June 30, 2021. For additional information, see “Note 4— Acquisitions” to our condensed consolidated financial statements.
Other Income and Expenses
Interest Expense. Interest expense totaled $7.9 million and $70.3 million during the three months ended June 30, 2021 and the three months ended June 30, 2020, respectively. The three months ended June 30, 2021 included interest expense on our Second Lien Notes as comparedwell as borrowings under our Revolving Credit Facility. For additional information, see “Note 2— Chapter 11 Emergence” and “Note 8— Debt” to our condensed consolidated financial statements.
Gain on Bargain Purchase. Noble recognized a $64.5 million gain on the bargain purchase of Pacific Drilling during the three months ended June 30, 2021. For additional information, see “Note 4— Acquisitions” to our condensed consolidated financial statements.
Income Tax Provision. We recorded an income tax benefit of $1.9 million and $121.2 million during the three months ended June 30, 2021 and the three months ended June 30, 2020, respectively.
During the three months ended June 30, 2021, our tax provision included tax benefits of $11.8 million related to a US reserve release, $12.6 million related to a US tax refund, $1.2 million related primarily to deferred tax adjustments partially offset by approximately $5.1 million of recurring tax expense and other tax expense of $18.6 million related to non-US tax reserves.
During the three months ended June 30, 2020, our tax benefit included the tax impact of the settlement of the uncertain tax positions related to the same2012-2017 US tax audit of $111.9 million and approximately $9.0 million of other recurring tax benefits.
Results for the period of 2016, of which $4.8 million was related to tax benefits resulting from February 6 through June 30, 2021, the damage incurred to the Noble Danny Adkinsperiod from January 1 through February 5, 2021 and the Noble Jim Day during the current period. The remaining $13.8 million was due to a larger pre-tax book loss and a higher effective tax rate, resulting from the particular geographic mix of income and sources of revenue during the current period.
For the Nine Months Ended Septembersix months ended June 30, 2017 and 20162020
Net loss from continuing operations attributable to Noble-UKincome for the nine months ended Septemberperiod from February 6 through June 30, 20172021 was $490.4$2.2 million, or $2.00$0.04 per diluted share, on operating revenues of $907.3 million, compared to net$311.8 million. Net income from continuing operations for the nine months ended September 30, 2016 of $373.3period from January 1 through February 5, 2021 was $250.2 million, or $1.48$0.98 per diluted share, on operating revenues of $1.9 billion.$77.5 million, compared to a net loss for the six months ended June 30, 2020 of $1,104.9 million, or $4.41 per diluted share, on operating revenues of $519.2 million.
As a result of Noble-UKNoble conducting all of its business through Noble-CaymanFinco and its subsidiaries, the financial position and results of operations for Noble-Cayman,Finco, and the reasons for material changes in the amount of revenue and expense items between Septemberthe period from February 6 through June 30, 20172021, the period from January 1 through February 5, 2021 and Septemberthe six months ended June 30, 2016,2020, would be the same as the information presented below regarding Noble-UKNoble in all material respects, with the exception of operating income. Duringloss and the ninegain on bargain purchase. For the period from February 6 through June 30, 2021 and the six months ended SeptemberJune 30, 20172020, Finco’s operating losses were $20.9 million and 2016, Noble-Cayman's operating loss was $22.0$78.7 million lower, and operating income was $23.6 million higher, respectively, than that of Noble-UK.Noble. The operating incomeloss difference is primarily a result of executiveexpenses related to corporate legal costs directly attributableand administration and a $46.5 million charge related to Noble-UK for operations support and stewardship related services.litigation in the Predecessor period. During the period from January 1 through February 5, 2021, Finco’s operating income was $0.3 million lower than that of Noble.
Rig Utilization,Key Operating Days and Average DayratesMetrics
Operating results for our contract drilling services segment are dependent on three primary metrics: operating days, dayrates and operating costs. We also track rig utilization, which is a function of operating days and the number of rigs in our fleet. For more information on operating costs, see “—Contract Drilling Services” below.
The COVID-19 pandemic and related mitigation efforts, coupled with production level disagreements among OPEC+ members along with the energy transition, have had, and could continue to have, a material negative impact on our business and results of operations. These conditions had significant adverse consequences for the financial condition of our customers, and uncertainty about the financial viability of offshore projects, which resulted in and could continue to result in contract terminations and customers seeking to re-negotiate contracts to secure price reductions. Additionally, restrictions on travel have resulted in delays in moving personnel, materials and equipment of our own and of our customers and suppliers, to and from our drilling rigs, which increases rig downtime and may result in decreases in or loss of dayrates. The occurrence of any such events with respect to our customers, contracts or suppliers will reduce our contract backlog, average dayrates and rig utilization. The extent of such impact will depend on future developments, which we cannot predict at this time.
The following table presents the average rig utilization, operating days and average dayrates for our rig fleet for the nine months ended September 30, 2017periods indicated:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Average Rig Utilization (1) | | Operating Days (2) | | | | Average Dayrates (2) | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | Successor | | | Predecessor | | Successor | | | Predecessor | | | | Successor | | | Predecessor | | |
| | Period From February 6, 2021 through June 30, 2021 | | | Period From January 1, 2021 through February 5, 2021 | | Six Months Ended
June 30, 2020 | | Period From February 6, 2021 through June 30, 2021 | | | Period From January 1, 2021 through February 5, 2021 | | Six Months Ended
June 30, 2020 | | | | Period From February 6, 2021 through June 30, 2021 | | | Period From January 1, 2021 through February 5, 2021 | | Six Months Ended
June 30, 2020 | | |
| Floaters | | 72 | % | | | 86 | % | | 56 | % | | 1,004 | | | | 216 | | | 1,221 | | | | | 213,184 | | | | 231,745 | | | 196,630 | | | |
| Jackups | | 63 | % | | | 58 | % | | 80 | % | | 1,094 | | | | 252 | | | 1,791 | | | | | 85,196 | | | | 95,212 | | | 138,190 | | | |
| Total | | 67 | % | | | 68 | % | | 68 | % | | 2,098 | | | | 468 | | | 3,012 | | | | | $ | 146,445 | | | | $ | 158,228 | | | $ | 161,877 | | | |
(1)We define utilization for a specific period as the total number of days our rigs are operating under contract, divided by the product of the total number of our rigs, including cold stacked rigs, and 2016:the number of calendar days in such period. Information reflects our policy of reporting on the basis of the number of available rigs in our fleet, excluding newbuild rigs under construction.
(2)An operating day is defined as a calendar day during which a rig operated under a drilling contract. We define average dayrates as revenue from contract drilling services earned per operating day. Average dayrates have not been adjusted for the non-cash amortization related to favorable customer contract intangibles.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Average Rig Utilization (1) | | Operating Days (2) | | Average Dayrates (3) |
| | | Nine Months Ended
September 30, | | Nine Months Ended
September 30, | | | | Nine Months Ended
September 30, | | |
| | | 2017 | | 2016 | | 2017 | | 2016 | | % Change | | 2017 | | 2016 | | % Change |
| Jackups | | 89 | % | | 82 | % | | 3,396 |
| | 2,916 |
| | 16 | % | | $ | 123,734 |
| | $ | 126,931 |
| | (3 | )% |
| Semisubmersibles | | 17 | % | | 25 | % | | 273 |
| | 557 |
| | (51 | )% | | 120,284 |
| | 270,953 |
| | (56 | )% |
| Drillships | | 58 | % | | 85 | % | | 1,277 |
| | 1,871 |
| | (32 | )% | | 339,093 |
| | 705,648 |
| | (52 | )% |
| Total | | 65 | % | | 67 | % | | 4,946 |
| | 5,344 |
| | (7 | )% | | $ | 179,132 |
| | $ | 344,571 |
| | (48 | )% |
| |
(1)
| We define utilization for a specific period as the total number of days our rigs are operating under contract, divided by the product of the total number of our rigs, including cold stacked rigs, and the number of calendar days in such period. Information reflects our policy of reporting on the basis of the number of available rigs in our fleet, excluding newbuild rigs under construction. |
| |
(2)
| Information reflects the number of days that our rigs were operating under contract. |
| |
(3)
| Average dayrates for the nine months ended September 30, 2017 and 2016, include a loss of $14.4 million and a gain of $12.4 million, respectively, relating to the termination date valuation of certain contingent payments for the Noble Sam Croft and Noble Tom Madden related to the FCX Settlement. The loss in 2017 had a negative impact and the gain in 2016 had a positive impact on the drillships average dayrates.
|
Contract Drilling Services
The following table presents the operating results for our contract drilling services segment for the nine months ended September 30, 2017 and 2016periods indicated (dollars in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | |
| | | | | | | | | | | |
| | Successor | | | Predecessor | | | | |
| | Period From | | | Period From | | | | | | |
| | February 6, 2021 | | | January 1, 2021 | | | | | | |
| | through | | | through | | Six Months Ended | | | | |
| | June 30, 2021 | | | February 5, 2021 | | June 30, 2020 | | | | |
| Operating revenues: | | | | | | | | | | | |
| Contract drilling services | | $ | 284,526 | | | | $ | 74,051 | | | $ | 487,505 | | | | | |
Reimbursables and other (1) | | 27,250 | | | | 3,430 | | | 31,724 | | | | | |
| | 311,776 | | | | 77,481 | | | 519,229 | | | | | |
| Operating costs and expenses: | | | | | | | | | | | |
| Contract drilling services | | 268,301 | | | | 46,965 | | | 305,299 | | | | | |
Reimbursables (1) | | 25,115 | | | | 2,737 | | | 28,018 | | | | | |
| Depreciation and amortization | | 39,583 | | | | 20,622 | | | 193,046 | | | | | |
| General and administrative | | 32,957 | | | | 5,727 | | | 90,842 | | | | | |
| Pre-petition charges | | — | | | | — | | | 10,515 | | | | | |
| Merger and integration costs | | 8,753 | | | | — | | | — | | | | | |
| Loss on impairments | | — | | | | — | | | 1,119,517 | | | | | |
| | 374,709 | | | | 76,051 | | | 1,747,237 | | | | | |
| Operating income (loss) | | $ | (62,933) | | | | $ | 1,430 | | | $ | (1,228,008) | | | | | |
|
| | | | | | | | | | | | | | | |
| | | Nine months ended September 30, | | Change |
| | | 2017 | | 2016 | | $ | | % |
| Operating revenues: | | | | | | | | |
| Contract drilling services | | $ | 885,931 |
| | $ | 1,841,321 |
| | $ | (955,390 | ) | | (52 | )% |
Reimbursables and other (1) | | 21,399 |
| | 50,588 |
| | (29,189 | ) | | (58 | )% |
| | | $ | 907,330 |
| | $ | 1,891,909 |
| | $ | (984,579 | ) | | (52 | )% |
| Operating costs and expenses: | | | | | | | | |
| Contract drilling services | | $ | 487,784 |
| | $ | 702,628 |
| | $ | (214,844 | ) | | (31 | )% |
Reimbursables (1) | | 13,374 |
| | 39,555 |
| | (26,181 | ) | | (66 | )% |
| Depreciation and amortization | | 392,360 |
| | 438,664 |
| | (46,304 | ) | | (11 | )% |
| General and administrative | | 49,869 |
| | 54,346 |
| | (4,477 | ) | | (8 | )% |
| Loss on impairment | | — |
| | 16,616 |
| | $ | (16,616 | ) | | (100 | )% |
| | | 943,387 |
| | 1,251,809 |
| | (308,422 | ) | | (25 | )% |
| Operating income | | $ | (36,057 | ) | | $ | 640,100 |
| | $ | (676,157 | ) | | (106 | )% |
| |
(1)
| We record reimbursements from customers for out-of-pocket expenses as operating revenues and the related direct costs as operating expenses. Changes in the amount of these reimbursables generally do not have a material effect on our financial position, results of operations or cash flows. |
Operating Revenues. The $955.4 million decline inRevenues
During the period from February 6 through June 30, 2021, contract drilling services revenues totaled $191.3 million for our floaters and $93.2 million for our jackups. Six of our 12 floaters were contracted and operated the majority of the period and seven of our 12 jackups were contracted and operated the majority of the period. The Pacific Santa Ana and Pacific Sharav were acquired in the Merger and the Noble Scott Marks returned to operations in early June 2021 following the end of its suspension, which began in May 2020. In April 2021, the Noble Sam Croft began its contract in Guyana, bringing our presence there to four rigs. The other contracted rigs not operating the full period included the Noble Clyde Boudreaux, Noble Tom Prosser, NobleHans Deul and Noble Sam Turner, which commenced new contracts in late June 2021, early May 2021, early April 2021 and early March 2021, respectively. The Noble Lloyd Noble completed its contract in late February 2021 and subsequently moved to the shipyard to prepare for its upcoming work in Norway, the Noble Roger Lewis, completed regulatory shipyard maintenance during the period and the Noble Sam Hartley was warm stacked in early May 2021. Additionally, contract drilling revenue for the nine months ended September 30, 2017 as comparedperiod included: (i) a reduction of $22.7 million of related to the samenon-cash amortization related to customer contract intangibles which were recognized on the Effective Date and (ii) lower amortizations for mobilization, pre-contract and capital recovery revenues.
During the period of 2016 was composed of an $818.3 million decline in average dayrates and a $137.1 million decline in operating days. Thefrom January 1 through February 5, 2021, contract drilling services revenues declinetotaled $50.1 million for our floaters and $24.0 million for our jackups. All six contracted floaters and seven of our eight contracted jackups operated the entire period. This was primarilyoffset by one contracted jackup not operating the full period, the Noble Scott Marks, which was on suspension, as previously described.
During the six months ended June 30, 2020, contract drilling services revenues totaled $240.0 million for our floaters with seven floaters contracted and operating a majority of the period and $247.5 million for our jackups with 10 jackups contracted and operating a majority of the period. The Noble Tom Prosser and Noble Tom Madden were placed on special standby rates during this period due to the effects of the COVID-19 pandemic. Rigs that were warm stacked for a part of or the entire six months included the Noble Hans Duel, Noble Houston Colbert, Noble Sam Hartley and Noble Sam Turner. The Noble Joe Beall was stacked after completing its final contract and was retired during the first quarter of 2020.
Operating Costs and Expenses
During the period from February 6 through June 30, 2021, contract drilling services costs, which includes our drillshiplocal administrative and semisubmersible fleet,operations support, totaled $268.3 million. Six of our 12 floaters were contracted and operated the majority of the period and seven of our 12 jackups were contracted and operated the majority of the period. Operating costs within the period increased due to the new rigs which experienced declineswere acquired in revenuesthe Merger and the Noble Lloyd Noble preparing for its new contract in Norway that starts in the third quarter of $887.5 million and $118.0 million, respectively, and2021.This was partially offset by revenue increasesdecreased operating costs as a result of the Noble Houston Colbert being warm stacked in our jackup fleet of $50.1 million.early May 2021.
The $887.5 million revenue decline in our drillship fleet consists of a decline in average dayrates and operating days of $468.3 million and $419.2 million, respectively, forDuring the nine months ended September 30, 2017 as compared to the same period of 2016. The decline in average dayrates was primarily related to the occurrence of the $393.0 million FCX Settlement in the previous period. The remainder of the dayrate decline and the decline in operating days was attributable to the Noble Tom Madden, Noble Sam Croft and Noble Bob Douglas,which were idle during the nine months ended September 30, 2017, but operated during the same period of 2016.
The $118.0 million revenue decline in our semisubmersible fleet for the nine months ended September 30, 2017, consists of a $41.1 million decline in average dayrates and a $76.9 million decline in operating days as compared to the same period of 2016. The declines in both average dayrates and operating days as compared to the same period of 2016 was attributable tofrom January 1 through February 5, 2021, contract completions for the Noble Clyde Boudreaux, Noble Jim Day,Noble Dave Beard, Noble Danny Adkins and Noble Amos Runner, none of which have returned to work since their respective contract completions.
The $50.1 million revenue increase in our jackup fleet is primarily attributable to an increase in operating days on the Noble Mick O'Brien and Noble Regina Allen as well as the startup of the newbuild Noble Lloyd Noble, all of which resulted in a $60.9 million increase in revenues. The revenue increase was partially offset by a $10.8 million decrease in average dayrates due to unfavorable dayrate changes across the jackup fleet.
Operating Costs and Expenses. Contract drilling services costs decreased $214.8 million fortotaled $47.0 million. Reduced operating costs in the nineperiod was a result of rigs stacked during the entire period including the Noble Clyde Boudreaux, Noble Houston Colbert, Noble Hans Deul and Noble Tom Prosser.
During the six months ended SeptemberJune 30, 2017 as compared2020, contract drilling services costs totaled $305.3 million. Operating costs for this period included costs related to 17 rigs which were contracted and operating a majority of the same period of 2016. Of the decrease, $175.2 million was dueperiod. In addition, this quarter also included costs related to rigs that operatedwere operating or stacked and ultimately retired and sold in the second half of 2020, including the Noble Bully I, Noble Bully II, Noble Danny Adkins, Noble Jim Day, Noble Joe Beall and Noble Paul Romano. The Noble Tom Prosser and Noble Tom Madden were placed on special standby rates during the samethis period of 2016 being idle during the nine months ended September 30, 2017. An additional $77.1 million decrease was due to continuing cost control measures. The cost control measures yielded reductions in labor and training related costs of approximately $31.1 million, rig mobilization costs of $11.8 million, repair and maintenance costs of $17.8 million and operations support costs of $16.8 million. These cost decreases were partially offset by the startupeffects of the COVID-19 pandemic. The Noble Lloyd Noble,Hans Duel was also warm stacked for a greater numbermajority of operating days for the contracted rigs during the currentthis period contributing to a reduction in costs.
Depreciation and write-off of a $14.4 million customer receivable during the nine months ended September 30, 2017.
amortization.Depreciation and amortization decreased $46.3totaled $39.6 million, for$20.6 million, and $193.0 million during the nineperiod from February 6 through June 30, 2021, the period from January 1 through February 5, 2021 and the six months ended SeptemberJune 30, 20172020, respectively. Depreciation during February 6 through June 30, 2021 was impacted by the fair value remeasurement of our rigs as compared toa result of the same periodimplementation of 2016. The decline wasfresh start accounting on the Effective Date and has increased due to the effectrigs acquired from the Merger. Depreciation during the six months ended June 30, 2020 declined due to impairments of rig retirements andassets recognized during the first quarter of 2020.
Loss on Impairments. We recorded no loss on impairments during 2016, partially offset by the effectperiod from February 6 through June 30, 2021 or the period from January 1 through February 5, 2021. We recorded a loss on impairment of $1.1 billion for the six months ended June 30, 2020. For additional information, see “Note 11— Loss on Impairment” to our condensed consolidated financial statements.
General and Administrative Expenses. General and administrative expenses totaled $33.0 million, $5.7 million and $90.8 million during the period from February 6 through June 30, 2021, the period from January 1 through February 5, 2021 and the six months ended June 30, 2020, respectively. The Predecessor period included $54.0 million of charges related to litigation that has been settled.
Pre-Petition Charges. Noble Lloydincurred $10.5 million of pre-petition charges during the six months ended June 30, 2020. These costs relate to attorneys’ and financial advisors’ fees and other professional fees incurred in connection with the Chapter 11 Cases.
Merger and integration costs. Noble being placed into service incurred $8.8 million of merger and integration costs in connection with the Merger during November 2016.
the period from February 6 through June 30, 2021. For additional information, see “Note 4— Acquisitions” to our condensed consolidated financial statements.
Other Income and Expenses
GeneralReorganization Items, Net. Noble incurred a net gain of $252.1 million for reorganization items during the period from January 1 through February 5, 2021. Finco incurred a net gain of $195.4 million for reorganization items during the period from January 1 through February 5, 2021. The gain was primarily the result of gains on the settlement of Liabilities subject to compromise exceeding other net reorganization charges and administrative expenses. Generalnet charges related to fresh start accounting. No reorganization charges or income were recorded during the six months ended June 30, 2020. For additional information, see “Note 2— Chapter 11 Emergence” to our condensed consolidated financial statements.
Interest Expense. Interest expense totaled $14.8 million, $0.2 million and administrative expenses decreased $4.5$141.2 million during the nineperiod from February 6 through June 30, 2021, the period from January 1 through February 5, 2021 and the six months ended SeptemberJune 30, 2017 as compared2020, respectively. The Predecessor period of 2021 included reduced expenses due to the sameBankruptcy Court order of a stay on all interest expense during the pendency of the Chapter 11 Cases. The Successor period of 2016, primarily due2021 includes interest expense on our newly issued Second Lien Notes as well as borrowings under
our Revolving Credit Facility. For additional information, see “Note 2— Chapter 11 Emergence” and “Note 8— Debt” to lower employee-related costs.our condensed consolidated financial statements.
Interest Expense, netGain on Bargain Purchase. Noble recognized a $64.5 million gain on the bargain purchase of amount capitalized. InterestPacific Drilling during the period from February 6 through June 30, 2021. For additional information, see “Note 4— Acquisitions” to our condensed consolidated financial statements.
Income Tax Benefit. We recorded an income tax benefit of $8.9 million, income tax expense increased $52.6of $3.4 million and income tax benefit $264.2 million during the nineperiod from February 6 through June 30, 2021, the period from January 1 through February 5, 2021 and the six months ended SeptemberJune 30, 2017 as compared to the same period of 2016. This increase was primarily due to the interest incurred during2020, respectively.
During the period on the senior notes issued in December 2016, the absencefrom February 6, 2021 to June 30, 2021, our tax provision included tax benefits of capitalized interest during the current period,$21.9 million related to US and an increase in interest rates on certain of our senior notes duenon-US reserve releases, $12.6 million related to the downgrading of our credit rating. These increasesa US tax refund, and $1.2 million related primarily to deferred tax adjustments. Such tax benefits were partially offset by tax expenses of $8.2 million related to various recurring items and $18.6 million related to non-US tax reserves.
During the retirement of a portion ofperiod ended on February 5, 2021, our Senior Notes due 2020, 2021 and 2022 as a result of two different tender offers (see Note 6— Debt for additional information) and the repayment of our $300.0 million 2.50% Senior Notes in March 2017.
Income Tax Provision. Our income tax provision increased $170.3included a tax benefit of $1.7 million forrelated to non-US reserve release and tax expense of $2.5 million related to fresh start and reorganization adjustments, and other recurring tax expenses of approximately $2.6 million.
During the ninesix months ended Septemberon June 30, 2017 as compared to2020, our tax benefit included the same periodtax effect from asset impairments of 2016. The increase was primarily$95.6 million, the tax impact of the application of the CARES Act of $42.6 million, a non-US reserve release due to a $260.7statute expiration of $4.6 million non-cash discrete tax item resulting from a tax restructuring inand the current period. The effect of this tax restructuring will be to lower current tax expense. This was partially offset by the tax effectsettlement of the FCX contract settlementuncertain tax positions related to the 2012-2017 US tax audit of $27.2$111.9 million in the same periodand approximately $9.0 million of 2016. In addition, there was a partial offset of $58.3 million due to a higher effectiveother recurring tax rate applied to a pre-tax book loss in the current period. The increase in the worldwide effective tax rate was primarily a result of the particular geographic mix of income and sources of revenue during the current period.benefits.
Liquidity and Capital Resources
OverviewAs a result of the financial restructuring through the Chapter 11 Cases, Noble emerged with a new $675.0 million revolving credit facility and $216.0 million of Second Lien Notes. At emergence, Legacy Noble’s ordinary shares were cancelled and Ordinary Shares were issued to Legacy Noble’s former bondholders. Certain former bondholders and former equity holders of Legacy Noble were also issued warrants to purchase shares of the Company.
Post-emergence Debt
Senior Secured Revolving Credit Facility
On the Effective Date, Finco and Noble International Finance Company (“NIFCO”) entered into the Revolving Credit Agreement providing for the $675.0 million Revolving Credit Facility and canceled all debt that existed immediately prior to the Effective Date. The Revolving Credit Facility matures on July 31, 2025. Subject to the satisfaction of certain conditions, Finco may from time to time designate one or more of Finco’s other wholly-owned subsidiaries as additional borrowers under the Revolving Credit Agreement (collectively with Finco and NIFCO, the “Borrowers”). As of the Effective Date, $177.5 million of loans were outstanding, and $8.8 million of letters of credit were issued, under the Revolving Credit Facility. As of June 30, 2021, we had $190.0 million of loans outstanding and $9.7 million of letters of credit issued under the Revolving Credit Facility and an additional $11.8 million in letters of credit and surety bonds issued under bilateral arrangements.
All obligations of the Borrowers under the Revolving Credit Agreement, certain cash management obligations and certain swap obligations are unconditionally guaranteed, on a joint and several basis, by Finco and certain of its direct and indirect subsidiaries (collectively with the Borrowers, the “Credit Parties”), including a guarantee by each Borrower of the obligations of each other Borrower under the Revolving Credit Agreement. All such obligations, including the guarantees of the Revolving Credit Facility, are secured by senior priority liens on substantially all assets of, and the equity interests in, each Credit Party, subject to certain exceptions and limitations described in the Revolving Credit Agreement. Neither Pacific Drilling nor any of its subsidiaries is a subsidiary guarantor of the Revolving Credit Facility, and none of their assets secure the Revolving Credit Facility.
The loans outstanding under the Revolving Credit Facility bear interest at a rate per annum equal to the applicable margin plus, at Finco’s option, either: (i) the reserve-adjusted LIBOR or (ii) a base rate, determined as the greatest of (x) the prime loan rate as published in the Wall Street Journal, (y) the federal funds effective rate plus 1⁄2 of 1%, and (z) the reserve-adjusted one-month LIBOR plus 1%. The applicable margin is initially 4.75% per annum for LIBOR loans and 3.75% per annum for base rate loans and will be increased by 50 basis points after July 31, 2024, and may be increased by an additional 50 basis points under certain conditions described in the Revolving Credit Agreement.
The Borrowers are required to pay customary quarterly commitment fees and letter of credit and fronting fees.
Availability of borrowings under the Revolving Credit Agreement is subject to the satisfaction of certain conditions, including restrictions on borrowings if, after giving effect to any such borrowings and the application of the proceeds thereof, (i) the aggregate amount of Available Cash (as defined in the Revolving Credit Agreement) would exceed $100.0 million, (ii) the Consolidated First Lien Net cash providedLeverage Ratio (as defined in the Revolving Credit Agreement) would be greater than 5.50 to 1.00 and the aggregate principal amount outstanding under the Revolving Credit Facility would exceed $610.0 million, or (iii) the Asset Coverage Ratio (as described below) would be less than 2.00 to 1.00.
Mandatory prepayments and, under certain circumstances, commitment reductions are required under the Revolving Credit Facility in connection with (i) certain asset sales, asset swaps and events of loss (subject to reinvestment rights if no event of default exists) and (ii) certain debt issuances. Available Cash in excess of $150.0 million is also required to be applied periodically to prepay loans (without a commitment reduction). The loans under the Revolving Credit Facility may be voluntarily prepaid, and the commitments thereunder voluntarily terminated or reduced, by operating activities was $299.1the Borrowers at any time without premium or penalty, other than customary breakage costs.
The Revolving Credit Agreement obligates Finco and its restricted subsidiaries to comply with the following financial maintenance covenants:
•as of the last day of each fiscal quarter in 2021, Adjusted EBITDA (as defined in the Revolving Credit Agreement) is not permitted to be lower than $25.0 million for the nine months endedfour fiscal quarter periods ending on each of September 30, 2017 and $960.4 million for the nine months ended September 30, 2016. The decrease in net cash provided by operating activities for the nine months ended September 30, 2017 was primarily attributable to recognizing a net loss in the current period. We had working capital of $346.0 million and $559.3 million at September 30, 20172021 and December 31, 2016, respectively.2021;
Net cash used in investing activities for•as of the nine months ended September 30, 2017 was $85.4 million as comparedlast day of each fiscal quarter ending on or after March 31, 2022, the ratio of Adjusted EBITDA to $609.9 million for the nine months ended September 30, 2016. The variance primarily relates to lower capital expenditures related to our major projects and newbuild expendituresCash Interest Expense (as defined in the current period.Revolving Credit Agreement) is not permitted to be less than (i) 2.00 to 1.00 for each four fiscal quarter period ending on or after March 31, 2022 until June 30, 2024, and (ii) 2.25 to 1.00 for each four fiscal quarter period ending thereafter; and
Net cash used•for each fiscal quarter ending on or after June 30, 2021, the ratio of (x) Asset Coverage Aggregate Rig Value (as defined in financing activitiesthe Revolving Credit Agreement) to (y) the aggregate principal amount of loans and letters of credit outstanding under the Revolving Credit Facility (the “Asset Coverage Ratio”) as of the last day of any such fiscal quarter is not permitted to be less than 2.00 to 1.00.
The Revolving Credit Facility contains affirmative and negative covenants, representations and warranties and events of default that the Company considers customary for facilities of this type.
Second Lien Notes Indenture
On the nine months ended September 30, 2017 was $330.6 million as comparedEffective Date, pursuant to $436.7 million for the nine months ended September 30, 2016. DuringBackstop Commitment Agreement and in accordance with the current period, our primary usesPlan, Noble and Finco consummated the Rights Offering of cash included the repayment of our $300.0 million 2.50% SeniorSecond Lien Notes and dividendsassociated Ordinary Shares at an aggregate subscription price of $200.0 million.
An aggregate principal amount of $216.0 million of Second Lien Notes was issued in the Rights Offering, which includes the aggregate subscription price of $200.0 million plus a backstop fee of $16.0 million which was paid in kind. The Second Lien Notes mature on February 15, 2028. The Second Lien Notes are fully and unconditionally guaranteed, jointly and severally, on a senior secured second-priority basis, by the direct and indirect subsidiaries of Finco that are Credit Parties under the Revolving Credit Facility. Neither Pacific Drilling nor any of its subsidiaries is a subsidiary guarantor of the Second Lien Notes, and none of their assets secure the Second Lien Notes.
The Second Lien Notes and such guarantees are secured by senior priority liens on the assets subject to noncontrollingliens securing the Revolving Credit Facility, including the equity interests in Finco and each guarantor of approximately $26.3 million.the Second Lien Notes, all of the rigs owned by the Company as of the Effective Date or acquired thereafter, certain assets related thereto, and substantially all other assets of Finco and such guarantors, in each case, subject to certain exceptions and limitations. Such collateral does not include any assets of, or equity interests in, Pacific Drilling or any of its subsidiaries.
Interest on the Second Lien Notes accrues, at Finco’s option, at a rate of: (i) 11% per annum, payable in cash; (ii) 13% per annum, with 50% of such interest to be payable in cash and 50% of such interest to be payable by issuing additional Second Lien Notes (“PIK Notes”); or (iii) 15% per annum, with the entirety of such interest to be payable by issuing PIK Notes. Finco shall pay interest semi-annually in arrears on February 15 and August 15 of each year, commencing August 15, 2021. For the period ended June 30, 2021, we have elected to pay the next interest payment in cash and accrued interest at a rate of 11%.
On or after February 15, 2024, Finco may redeem all or part of the Second Lien Notes at fixed redemption prices (expressed as percentages of the principal amount), plus accrued and unpaid interest, if any, to, but excluding, the redemption date. Finco may also redeem the Second Lien Notes, in whole or in part, at any time and from time to time on or before February 14, 2024 at a redemption price equal to 106% of the principal amount plus accrued and unpaid interest, if any, to, but excluding, the applicable redemption date, plus a “make-whole”
premium. Notwithstanding the foregoing, if a Change of Control (as defined in the Second Lien Notes Indenture) occurs prior to (but not including) February 15, 2024, then, within 120 days of such Change of Control, Finco may elect to purchase all remaining outstanding Second Lien Notes at a redemption price equal to 106% of the principal amount, plus accrued and unpaid interest, if any, to, but excluding, the applicable redemption date.
The Second Lien Notes contain covenants and events of default that the Company considers customary for notes of this type.
Sources and Uses of Cash Overview
Our principal sourcesources of capital in the current period waswere cash generated from operating activities and cash on hand.funding from our Revolving Credit Facility and Second Lien Notes. Cash on hand during the current period was primarily used for the following:
•normal recurring operating expenses;
•fees and expenses related to the Chapter 11 Cases; and
•capital expenditures.
Net cash provided by operating activities was $30.9 million during the period from February 6 through June 30, 2021, net cash used in operating activities was $45.4 million for the period from January 1 through February 5, 2021 and net cash provided by operating activities was $48.3 million for the six months ended June 30, 2020. The Successor period benefited from a cash flow inflow from operating assets and liabilities, while the Predecessor had a cash outflow from operating assets and liabilities. We had working capital of $195.7 million at June 30, 2021 and $383.9 million at December 31, 2020.
Net cash provided by investing activities was $10.9 million during the period from February 6 through June 30, 2021, net cash used in investing activities was $14.4 million during the period from January 1 through February 5, 2021 and net cash used in investing activities was $69.1 million during the six months ended June 30, 2020. The Predecessor and Successor periods include shipyard work on the Noble Lloyd Noble and the managed pressure drilling upgrade on the Noble Don Taylor and Noble Tom Madden. The Successor period also includes cash acquired from the Merger and proceeds from the sale of the Pacific Bora and Pacific Mistral in late June 2021.
Net cash provided by financing activities was $12.8 million during the period from February 6 through June 30, 2021, net cash used in financing activities was $191.2 million during the period from January 1 through February 5, 2021 and net cash provided by financing activities was $107.4 million for the six months ended June 30, 2020. The Predecessor period included the repayment of our $300.0 million 2.50% Senior Notes;the 2017 Credit Facility, issuances of the Second Lien Notes and
capital expenditures. borrowings on the Revolving Credit Facility. The Successor period includes net borrowings on the Revolving Credit Facility.
Our currently anticipated cash flow needs, both in the short-term and long-term, may include the following:
•normal recurring operating expenses;
•planned and discretionary capital expenditures; and
repayment•repurchase, redemptions or repayments of debt and interest.
We may, from time to time, redeem, repurchase or otherwise acquire our outstanding Second Lien Notes through open market purchases, tender offers or pursuant to the terms of such securities.
We currently expect to fund theseour cash flow needs with cash generated by our operations, cash on hand, or borrowings under our existing credit facilityRevolving Credit Facility. Subject to market conditions and potential issuances ofother factors, we may also issue equity or long-term debt or asset sales. However,securities to adequately coverfund our expected cash flow needs we may require capital in excess of the amount available from these sources, and we may seek additional sources of liquidity and/or delay or cancel certain discretionary capital expenditures orfor other payments as necessary.
At September 30, 2017, we had a total contract drilling services backlog of approximately $3.2 billion. Our backlog as of September 30, 2017 includes a commitment of 54 percent of available days for the remainder of 2017 and 40 percent of available days for 2018. For additional information regarding our backlog, see “Contract Drilling Services Backlog.”purposes.
Capital Expenditures
Capital expenditures including capitalized interest, totaled $74.4$80.7 million, $10.3 million and $592.0$65.4 million forduring the nineperiod from February 6 through June 30, 2021, the period from January 1 through February 5, 2021 and six months ended SeptemberJune 30, 2017 and 2016,2020, respectively.
Capital expenditures during the first nine months of 2017period from February 6 through June 30, 2021 consisted of the following:
•$38.828.4 million for sustaining capital and upgrades and replacements to drilling equipment;capital;
•$23.937.9 million in major projects, including subsea and other related projects; and
•$11.70.7 million for capitalized interest; and
•$13.7 million for rebillable capital and contract modifications.
Capital expenditures during the period from January 1 through February 5, 2021 consisted of the following:
•$1.5 million for sustaining capital;
•$2.1 million in major projects, including subsea and other related expenditures.projects; and
•$6.7 million for rebillable capital and contract modifications.
Including the effects of the recent Merger, our total capital expenditure estimate for 2017the period from February 6 through December 31, 2021 is expected to range between $170 million and $190 million, of which approximately $101.8 million.$100 million to $110 million is currently anticipated to be spent for sustaining capital, and approximately $25 million is anticipated to be rebillable to our customers.
From time to time we consider possible projects that would require expenditures that are not included in our capital budget, and such unbudgeted expenditures could be significant. In addition, while liquidity and preservation of capital remains our top priority, we will continue to evaluate acquisitions of drilling units from time to time.
Share Capital
As of June 30, 2021, Noble had approximately 60.2 million shares outstanding as compared to approximately 251.1 million shares outstanding and trading at December 31, 2020.
At Legacy Noble’s 2020 Annual General Meeting, Legacy Noble’s shareholders authorized its Board of Directors to increase share capital through the issuance of up to approximately 8.7 million ordinary shares (at then current nominal value of $0.01 per share). Other factors that could cause actualthan shares issued to Legacy Noble’s directors under the Noble Corporation 2017 Director Omnibus Plan, the authority was not used to allot shares during the year ended December 31, 2020 and expired on the Effective Date.
In accordance with the Plan, all agreements, instruments and other documents evidencing, relating to or otherwise connected with any of Legacy Noble’s equity interests outstanding prior to the Effective Date, including all equity-based awards, were cancelled and all such equity interests have no further force or effect after the Effective Date. Pursuant to the Plan, the holders of Legacy Noble’s ordinary shares, par value $0.01 per share, outstanding prior to the Effective Date received their pro rata share of the Tranche 3 Warrants to acquire Ordinary Shares. Pursuant to the Memorandum of Association of Noble Corporation, the share capital expendituresof Noble is $6,000 divided into 500,000,000 ordinary shares of a par value of $0.00001 each and 100,000,000 shares of a par value of $0.00001, each of such class or classes having the rights as the Board may determine from time to materially exceed plan include delays and cost overruns in shipyards (including costs attributabletime.
Noble has not paid dividends since the third quarter of 2016. With respect to labor shortages), shortages of equipment, latent damage or deterioration to hull, equipment and machinery in excess of engineering estimates and assumptions, changes in governmental regulations and requirements and changes in design criteria or specifications during repair or construction.
Dividends
TheLegacy Noble, the declaration and payment of dividends requirerequired the authorization of the Board of Directors of Noble-UK,Legacy Noble, provided that such dividends on issued share capital may be paid only out of Noble-UK’sLegacy Noble’s “distributable reserves” on its statutory balance sheet. Noble-UK issheet in accordance with UK law. Therefore, Legacy Noble was not permitted to pay dividends out of share capital, which includes share premiums. During the fourth quarter of 2016, our Board of Directors eliminated our quarterly cash dividend.premium. The resumption of the payment of future dividends will depend on our results of operations, financial condition, cash requirements, future business prospects, contractual and indenture restrictions and other factors deemed relevant by our Board of Directors.
Share Repurchases
Under UK law, the Company is only permitted to purchase its own shares by way of an “off-market purchase” in a plan approved by shareholders. At September 30, 2017,Directors; however, at this time, we do not have shareholder authorityexpect to repurchase shares. Duringpay any dividends in the threeforeseeable future.
Guarantees of Registered Securities
Finco has issued the following registered securities: the Second Lien Notes due 2028. The Second Lien Notes are fully and nine months ended September 30, 2017, no shares were repurchased.
unconditionally guaranteed, jointly and severally, on a senior secured second-priority basis, by the direct and indirect subsidiaries of Finco that are Credit Parties under the Revolving Credit Facility and Senior Unsecured Notes
Credit Facility and Commercial Paper Program
We currently have a five-year $2.4 billion senior unsecured credit facility that matures in January 2020 and is guaranteed by our indirect, wholly owned subsidiaries, Noble Holding (U.S.) LLC (“NHUS”) and Noble Holding International Limited (“NHIL”(the “Guarantors”). The credit facility provides usguarantees are unconditional, irrevocable, joint and several senior obligations of each Guarantor and rank equally in right of payment with the abilityall future senior indebtedness of such Guarantor and effectively senior to issue up to $500.0 million in lettersall of credit. such Guarantor’s unsecured senior indebtedness.
The issuance of letters of credit under the facility reduces the amount available for borrowing.
Throughout the term of the credit facility, we pay a facility feeSecond Lien Notes and such guarantees are secured by second priority liens on the daily unused amount of the underlying commitment which ranges from 0.1 percent to 0.35 percent depending on our debt ratings with each agency. At September 30, 2017, based on our debt ratings on that date, the facility fee was 0.35 percent. At September 30, 2017, we had no borrowings outstanding or letters of credit issued. In addition, our credit facility has provisions which vary the applicable interest rates based upon our debt ratings. At September 30, 2017, the interest rate in effect is the highest permitted interest rate under the credit facility.
Debt Issuances
In December 2016, we issued $1.0 billion aggregate principal amount of 7.75% Senior Notes, which we issued through our indirect wholly-owned subsidiary, NHIL. The net proceeds of approximately $967.6 million, after estimated expenses, were primarily used to retire a portion of our near-term Senior Notes in a related tender offer and the remaining portion was used for general corporate purposes.
Senior Notes Interest Rate Adjustments
During 2016 and to date in 2017, we experienced debt rating downgrades by Moody’s Investors Service and S&P Global Ratings (“S&P”), which reduced our debt ratings below investment grade. As a result of these downgrades, we experienced interest rate increases during 2016 and 2017 on our Senior Notes due 2018, 2025 and 2045, all of which are subject to provisions that vary the applicable interest rates based on our debt rating. On October 18, 2017, S&P further reduced our debt rating, which will increase the interest rates on our 2025 and 2045 Senior Notes to 7.95% and 8.95%, respectively, beginning in April 2018. Once the new interest rates take effect in April 2018, these Senior Notes will have reached the contractually-defined maximum interest rate set for each rating agency. The interest rates on these Senior Notes may be decreased if our debt ratings were to be raised by either rating agency above specified levels.
Our other outstanding senior notes, including the Senior Notes due 2024 issued in December 2016, do not contain provisions varying applicable interest rates based upon our credit rating.
Debt Tender Offers and Repayments
In December 2016, we commenced cash tender offers for our 4.90% Senior Notes due 2020, of which $467.8 million principal amount was outstanding, our 4.625% Senior Notes due 2021, of which $396.6 million principal amount was outstanding and our 3.95% Senior Notes due 2022, of which $400.0 million principal amount was outstanding. On December 28, 2016, we purchased $762.3 million of these Senior Notes for $750.0 million, plus accrued interest, using a portion of the net proceeds of the $1.0 billion Senior Notes due 2024 issuance in December 2016. In December 2016, as a result of this transaction, we recognized a net gain of approximately $6.7 million.
In March 2016, we commenced cash tender offers for our 4.90% Senior Notes due 2020, of which $500.0 million principal amount was outstanding, and our 4.625% Senior Notes due 2021, of which $400.0 million principal amount was outstanding. On April 1, 2016, we purchased $36.0 million of these Senior Notes for $24.0 million, plus accrued interest, using cash on hand. In April 2016, as a result of this transaction, we recognized a net gain of approximately $11.1 million.
In March 2017, we repaid our $300.0 million 2.50% Senior Notes using cash on hand.
Covenants
The credit facility is guaranteed by NHUS and NHIL. The credit facility contains a covenant that limits our ratio of debt to total tangible capitalization, as defined in the credit facility, to 0.60. At September 30, 2017, our ratio of debt to total tangible capitalization was approximately 0.41. We were in compliance with all covenants under the credit facility as of September 30, 2017.
In addition to the covenants from the credit facility noted above, the indentures governing our outstanding senior unsecured notes contain covenants that place restrictions on certain merger and consolidation transactions, unless we are the surviving entity or the other party assumescollateral securing the obligations under the Revolving Credit Facility, including, among other things, (i) a pledge of the equity interests in Finco, (ii) pledges of the equity interests in the Guarantors and (iii) a lien on substantially all of the assets of Finco and the Guarantors (including the equity interests in substantially all of the other direct subsidiaries of Finco and the Guarantors), in each case, subject to certain exceptions and limitations (collectively, the “Collateral”). The Collateral also includes mortgages on certain rigs owned by the Company as of the Effective Date. Neither Pacific Drilling nor any of its subsidiaries is a subsidiary guarantor of the Revolving Credit Facility or the Second Lien Notes. The Collateral does not include any assets of, or equity interests in, Pacific Drilling or any of its subsidiaries.
Second Lien Note Guarantees
The guarantees by the Guarantors are unconditional, irrevocable, joint and several senior obligations of each Guarantor and rank equally in right of payment with all future senior indebtedness of such Guarantor and effectively senior to all of such Guarantor’s unsecured senior indebtedness. The guarantees rank senior in right of payment to any existing and future subordinated obligations of such Guarantor and are effectively junior to any obligations of such Guarantor that are secured by senior liens on the Collateral or secured by assets which do not constitute Collateral. Under the indenture governing the Second Lien Notes, a Guarantor may be released and relieved of its obligations under its guarantee under certain circumstances, including: (1) upon Finco’s exercise of legal defeasance in accordance with the relevant provisions of the indenture governing the Second Lien Notes, (2) in the event of any sale or other disposition of all of the capital stock of any Guarantor in compliance with the provisions of the indenture governing the Second Lien Notes, (3) upon the dissolution or liquidation of a Guarantor, (3) with the requisite consent of the noteholders, (4) if such Guarantor is properly designated as an unrestricted subsidiary in accordance with the indenture governing the Second Lien Notes, (5) upon the release or discharge of the Guarantor’s obligations under its guarantee or (6) with respect to certain future immaterial guarantors, upon a written notice from Finco to the trustee for the Second Lien Notes.
Finco is a holding company with no significant operations or material assets other than the direct and indirect equity interests it holds in the Guarantors and other non-guarantor subsidiaries. Finco conducts its operations primarily through its subsidiaries. As a result, its ability to pay principal and interest on the Second Lien Notes is dependent on the cash flow generated by its subsidiaries and their ability to make such cash available to Finco by dividend or otherwise. The Guarantors’ earnings will depend on their financial and operating performance, which will be affected by general economic, industry, financial, competitive, operating, legislative, regulatory and other factors beyond Finco’s control. Any payments of dividends, distributions, loans or advances to Finco by the Guarantors could also be subject to restrictions on dividends under applicable local law in the jurisdictions in which the Guarantors operate. In the event that Finco does not receive distributions from the Guarantors, or to the extent that the earnings from, or other available assets of, the Guarantors are insufficient, Finco may be unable to make payments on the Second Lien Notes.
Pledged Securities of Affiliates
Pursuant to the terms of the Second Lien Notes collateral documents, the collateral agent under the indenture governing the Second Lien Notes may pursue remedies, or pursue foreclosure proceedings on the Collateral (including the equity of the Guarantors and other direct subsidiaries of Finco and the Guarantors), following an event of default under the indenture governing the Second Lien Notes. The collateral agent’s ability to exercise such remedies is limited by the intercreditor agreement for so long as any priority lien debt is outstanding.
The pledged equity of the Guarantors constitutes substantially all of the securities of our affiliates which have been pledged to secure the obligations under the Second Lien Notes. The value of the pledged equity is subject to fluctuations based on factors that include, among other things, general economic conditions and the ability to sellrealize on the collateral as part of a going concern and in an orderly fashion to available and willing buyers and not under distressed circumstances. There is no trading market for the pledged equity interests.
Under the terms of the documents governing the Second Lien Notes (the “Second Lien Notes Documents”), Finco and the Guarantors will be entitled to the release of the Collateral from the liens securing the Second Lien Notes under one or transfer allmore circumstances, including (1) to the extent required by or substantially allpursuant to the terms of our assets. In addition, there are restrictionsthe Second Lien Notes Documents; (2) to the extent that proceeds continue to constitute Collateral, in the event that Collateral is sold, transferred, disbursed or otherwise disposed of to third parties; or (3) as otherwise provided in the Second Lien Notes Documents, including the release of the priority lien on incurring or assuming certain lienssuch Collateral. Upon the release of any subsidiary from its guarantee, if any, in accordance with the terms of the indenture governing the Second Lien Notes, the lien on any pledged equity interests issued by such Guarantor and on entering into saleany assets of such Guarantor will automatically terminate.
Guarantor Summarized Financial Information
The summarized financial information below reflect the combined accounts of the Guarantors and lease-back transactions. At Septemberthe non-consolidated accounts of Finco (collectively, the “Obligors”), for the dates and periods indicated. The financial information is presented on a combined basis and intercompany balances and transactions between entities in the Obligor group have been eliminated.
Summarized Balance Sheet Information:
| | | | | | | | | | | | | | |
| Successor | | | Predecessor |
| June 30, 2021 | | | December 31, 2020 |
| Current assets | $ | 253,014 | | | | $ | 461,587 | |
| Amounts due from non-guarantor subsidiaries, current | 5,357,687 | | | | 5,552,158 | |
| Noncurrent assets | 1,286,654 | | | | 3,590,865 | |
| Amounts due from non-guarantor subsidiaries, noncurrent | 1,069,850 | | | | 1,045,237 | |
| Current liabilities | 181,506 | | | | 159,601 | |
| Amounts due from non-guarantor subsidiaries, current | 4,935,968 | | | | 5,532,634 | |
| Noncurrent liabilities | 453,351 | | | | 120,033 | |
| Amounts due from non-guarantor subsidiaries, noncurrent | 132,787 | | | | 480,460 | |
Summarized Statement of Operations Information:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Successor (1) | | | Predecessor (1) |
| | Obligors | | | Obligors |
| | | | Period From | | | Period From | | | | |
| | Three Months | | February 6, 2021 | | | January 1, 2021 | | Three Months | | Six Months |
| | Ended | | through | | | through | | Ended | | Ended |
| | June 30, 2021 | | June 30, 2021 | | | February 5, 2021 | | June 30, 2020 | | June 30, 2020 |
| Operating revenues | | $ | 174,383 | | | $ | 258,331 | | | | $ | 70,584 | | | $ | 212,718 | | | $ | 471,662 | |
| Operating costs and expenses | | 181,767 | | | 269,429 | | | | 63,255 | | | 215,982 | | | 1,079,033 | |
| Income (loss) from continuing operations before income taxes | | (12,605) | | | (27,296) | | | | (2,303,528) | | | 5,012 | | | (615,519) | |
| Net income (loss) | | (19,220) | | | (35,546) | | | | (2,318,932) | | | 639 | | | (623,313) | |
(1)Includes operating revenue of $13.3 million, operating costs and expenses of $0.5 million and other expense of $4.1 million attributable to transactions with non-guarantor subsidiaries for the period from February 6, 2021 through June 30, 2017, we were2021; Includes operating revenue of $11.1 million, operating costs and expenses of $3.3 million and other income of $0.2 million attributable to transactions with non-guarantor subsidiaries for the three months ended June 30, 2021; Includes operating revenue of $3.8 million, operating costs and expenses of $1.1 million and other expense of $(1.2) million attributable to transactions with non-guarantor subsidiaries for the period from January 1, 2021 through February 5, 2021; Includes operating revenue of $24.7 million, operating costs and expenses of $3.5 million and other income of $6.3 million attributable to transactions with non-guarantor subsidiaries for the three months ended June 30, 2020; Includes operating revenue of $50.7 million, operating costs and expenses of $10.0 million and other expense of $6.6 million attributable to transactions with non-guarantor subsidiaries for the six months ended June 30, 2020.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements as that term is defined in compliance with allItem 303(a)(4)(ii) of our debt covenants. We continually monitor compliance with the covenants under our notes and expect to remain in compliance during the remainder of 2017.Regulation S-K.
New Accounting Pronouncements
See Part I, Item 1, “Financial Information, Note 13—Financial Statements, “Note 5— Accounting Pronouncements,” to the Condensed Consolidated Financial Statementscondensed consolidated financial statements for a description of the recent accounting pronouncements.
Item 3. Quantitative and Qualitative Disclosures Aboutabout Market Risk
Market risk is the potential for loss due to aThere has been no significant change in the value of a financial instrument as a result of fluctuations in interest rates, currency exchange rates or equity prices, as further described below.
Interest Rate Risk
We are subjectour exposure to market risk exposure relatedwhen compared to changesthose disclosed in interest rates“Part II - Item 7A. Quantitative and Qualitative Disclosures About Market Risk” in our Annual Report on borrowings underForm 10-K for the credit facility. Interest on borrowings under the credit facility is at an agreed upon percentage point spread over LIBOR, or a base rate stated in the agreement. At September 30, 2017, we had no borrowings outstanding under our credit facility.
During 2016 and to date in 2017, we experienced debt rating downgrades by Moody’s Investors Service and S&P Global Ratings (“S&P”), which reduced our debt ratings below investment grade. As a result of these downgrades, we experienced interest rate increases during 2016 and 2017 on our Senior Notes due 2018, 2025 and 2045, all of which are subject to provisions that vary the applicable interest rates based on our debt rating. On October 18, 2017, S&P further reduced our debt rating, which will increase the interest rates on our 2025 and 2045 Senior Notes to 7.95% and 8.95%, respectively, beginning in April 2018. Once the new interest rates take effect in April 2018, these Senior Notes will have reached the contractually-defined maximum interest rate set for each rating agency. The interest rates on these Senior Notes may be decreased if our debt ratings were to be raised by either rating agency above specified levels.
Our other outstanding senior notes, including the Senior Notes due 2024 issued in December 2016, do not contain provisions varying applicable interest rates based upon our credit rating.
We maintain certain debt instruments at a fixed rate whose fair value will fluctuate based on changes in market expectations for interest rates and perceptions of our credit risk. The fair value of our total debt was $3.4 billion and $3.8 billion at September 30, 2017 andyear ended December 31, 2016, respectively. The decrease in the fair value of debt relates to the repayment of our $300.0 million 2.50% Senior Notes, which matured in March 2017, and changes in market expectations for interest rates and perceptions of our credit risk.2020.
Foreign Currency Risk
Although we are a UK company, we define foreign currency as any non-U.S. denominated currency. Our functional currency is primarily the U.S. Dollar, which is consistent with the oil and gas industry. However, outside the United States, a portion of our expenses are incurred in local currencies. Therefore, when the U.S. Dollar weakens (strengthens) in relation to the currencies of the countries in which we operate, our expenses reported in U.S. Dollars will increase (decrease).
We are exposed to risks on future cash flows to the extent that local currency expenses exceed revenues denominated in local currency that are other than the functional currency. To help manage this potential risk, we periodically enter into derivative instruments to manage our exposure to fluctuations in currency exchange rates, and we may conduct hedging activities in future periods to mitigate such exposure. These contracts are primarily accounted for as cash flow hedges, with the effective portion of changes in the fair value of the hedge recorded on the Condensed Consolidated Balance Sheet and in “Accumulated other comprehensive income (loss)” (“AOCL”). Amounts recorded in AOCL are reclassified into earnings in the same period or periods that the hedged item is recognized in earnings. The ineffective portion of changes in the fair value of the hedged item is recorded directly to earnings. We have documented policies and procedures to monitor and control the use of derivative instruments. We do not engage in derivative transactions for speculative or trading purposes, nor are we a party to leveraged derivatives.
Several of our regions, including our operations in the North Sea, have a significant amount of their cash operating expenses payable in local currencies. To limit the potential risk of currency fluctuations, we periodically enter into forward contracts, which settle monthly in the operations’ respective local currencies. All of these contracts have a maturity of less than 12 months. The forward contract settlements in the remainder of 2017 represent approximately 70 percent of these forecasted local currency requirements. The notional amount of the forward contracts outstanding, expressed in U.S. dollars, was approximately $10.1 million at September 30, 2017. Total unrealized gains related to these forward contracts were approximately $0.7 million as of September 30, 2017 and were recorded as part of AOCL. A 10 percent change in the exchange rate for the local currencies would change the fair value of these forward contracts by approximately $1.0 million.
Market Risk
We have a U.S. noncontributory defined benefit pension plan that covers certain salaried employees and a U.S. noncontributory defined benefit pension plan that covers certain hourly employees, whose initial date of employment is prior to August 1, 2004 (collectively referred to as our “qualified U.S. plans”). These plans are governed by the Noble Drilling Employees’ Retirement Trust. The benefits from these plans are based primarily on years of service and, for the salaried plan, employees’ compensation near retirement. These plans are designed to qualify under the Employee Retirement Income Security Act of 1974 (“ERISA”), and our funding policy is consistent with funding requirements of ERISA and other applicable laws and regulations. We make cash contributions, or utilize credits available to us, for the qualified U.S. plans when required. The benefit amount that can be covered by the qualified U.S. plans is limited under ERISA and the Internal Revenue Code (“IRC”) of 1986. Therefore, we maintain an unfunded, nonqualified excess benefit plan designed to maintain benefits for specified employees at the formula level in the qualified salary U.S. plan. We refer to the qualified U.S. plans and the excess benefit plan collectively as the “U.S. plans.”
In addition to the U.S. plans, each of Noble Drilling (Land Support) Limited and Noble Resources Limited, both indirect, wholly-owned subsidiaries of Noble-UK, maintains a pension plan that covers all of its salaried, non-union employees, whose most recent date of employment is prior to April 1, 2014 (collectively referred to as our “non-U.S. plans”). Benefits are based on credited service and employees’ compensation, as defined by the plans.
Changes in market asset values related to the pension plans noted above could have a material impact upon our Condensed Consolidated Statement of Comprehensive Income (Loss) and could result in material cash expenditures in future periods.
Item 4. Controls and Procedures
DavidRobert W. Williams, Chairman,Eifler, President and Chief Executive Officer (Principal Executive Officer) of Noble-UK,Noble, and Adam C. Peakes,Richard B. Barker, Senior Vice President and Chief Financial Officer Noble-UK,(Principal Financial Officer) of Noble, have evaluated the disclosure controls and procedures of Noble-UKNoble as of the end of the period covered by this report. On the basis of this evaluation, Mr. WilliamsEifler and Mr. PeakesBarker have concluded that Noble-UK’sNoble’s disclosure controls and procedures were effective as of SeptemberJune 30, 2017. Noble-UK’s2021. Noble’s disclosure controls and procedures are designed to ensure that information required to be disclosed by Noble-UKNoble in the reports that it files with or submits to the SEC are recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and is accumulated and communicated to management as appropriate to allow timely decisions regarding required disclosure.
DavidRobert W. Williams,Eifler, President and Chief Executive Officer (Principal Executive Officer) of Noble-CaymanFinco, and Thomas B Sloan Jr.,Richard B. Barker, Director, Senior Vice President and Chief Financial Officer (Principal Financial Officer) of Noble-Cayman,Finco, have evaluated the disclosure controls and procedures of Noble-CaymanFinco as of the end of the period covered by this report. On the basis of this evaluation, Mr. WilliamsEifler and Mr. SloanBarker have concluded that Noble-Cayman’sFinco’s disclosure controls and procedures were effective as of SeptemberJune 30, 2017. Noble-Cayman’s2021. Finco’s disclosure controls and procedures are designed to ensure that information required to be disclosed by Noble-CaymanFinco in the reports that it files with or submits to the SEC are recorded, processed, summarized and reported within the
time periods specified in the SEC’s rules and forms and is accumulated and communicated to management as appropriate to allow timely decisions regarding required disclosure.
Management is in the process of evaluating and integrating the internal controls of the acquired Pacific Drilling business into the existing operations. There waswere no changechanges in either Noble-UK’s or Noble-Cayman’sNoble’s internal control over financial reporting that occurred during the quarter ended SeptemberJune 30, 20172021 that have materially affected, or isare reasonably likely to materially affect, the internal control over financial reporting of eachNoble.
Management is in the process of Noble-UKevaluating and integrating the internal controls of the acquired Pacific Drilling business into the existing operations. There were no changes in Finco’s internal control over financial reporting that occurred during the quarter ended June 30, 2021 that have materially affected, or Noble-Cayman, respectively.
are reasonably likely to materially affect, the internal control over financial reporting of Finco.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Information regarding legal proceedings is presented in Note 12—“Note 15— Commitments and Contingencies,” to our condensed consolidated financial statements included in Item 1 of Part I of this Quarterly Report on Form 10-Q and is incorporated herein by reference.
Item 1A. Risk Factors
There are numerous factors that affect our business and results of operations, many of which are beyond our control. In addition to the informationrisk factors set forth below and the other information presented in this quarterly report,Quarterly Report, you should carefully read and consider “Item 1A. Risk Factors” in Part I and “Item 7. Management'sManagement’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II of our annual reportAnnual Report on Form 10-K for the year ended December 31, 2016 and “Item 1A. Risk Factors” in Part II of our quarterly report on Form 10-Q for the quarter ended June 30, 2017,2020, which contains descriptions of significant risks that might cause our actual results of operations in future periods to differ materially from those currently anticipated or expected.
Risks Related to Our Business and Operations Item 2. UnregisteredWe may experience risks associated with future mergers, acquisitions or dispositions of businesses or assets or other strategic transactions.
As part of our business strategy, we may pursue mergers, acquisitions or dispositions of businesses or assets or other strategic transactions that we believe will enable us to strengthen or broaden our business. We may be unable to implement this element of our strategy if we cannot identify suitable companies, businesses or assets, reach agreement on potential strategic transactions on acceptable terms, manage the impacts of such transactions on our business or for other reasons. Moreover, mergers, acquisitions, dispositions and other strategic transactions involve various risks, including, among other things, (i) difficulties relating to integrating or disposing of a business and unanticipated changes in customer and other third-party relationships subsequent thereto, (ii) diversion of management’s attention from day-to-day operations, (iii) failure to realize the anticipated benefits of such transactions, such as cost savings and revenue enhancements, (iv) potentially substantial transaction costs associated with such transactions and (v) potential impairment resulting from the overpayment for an acquisition.
Future mergers or acquisitions may require us to obtain additional equity or debt financing, which may not be available on attractive terms. Moreover, to the extent a transaction financed by non-equity consideration results in goodwill, it will reduce our tangible net worth, which might have an adverse effect on credit availability.
Future sales or the availability for sale of substantial amounts of the Ordinary Shares, or the perception that these sales may occur, could, adversely affect the trading price of the Ordinary Shares and could impair our ability to raise capital through future sales of equity securities.
Pursuant to the Memorandum of Association of Noble Corporation, the share capital of Noble is $6,000 divided into 500,000,000 ordinary shares of a par value of $0.00001 each and 100,000,000 shares of a par value of $0.00001, each of such class or classes having the rights as our Board of Directors may determine from time to time. On August 2, 2021, there were 60,159,405 Ordinary Shares outstanding and 6,463,182 Penny Warrants (as defined herein) issued and outstanding. In addition, as of August 2, 2021, 8,321,494 Tranche 1 Warrants, 8,322,070 Tranche 2 Warrants and 2,777,676 Tranche 3 Warrants (each as defined herein) were outstanding and exercisable. We also have 7,716,049 Ordinary Shares authorized and initially reserved for issuance pursuant to equity awards under the Noble Corporation 2021 Long-Term Incentive Plan.
A large percentage of the Ordinary Shares are held by a relatively small number of investors. We entered into (i) the Equity Registration Rights Agreement (as defined herein) with certain parties who received Ordinary Shares under the Plan and (ii) a registration rights agreement with the holders identified therein in connection with the closing of the Merger, in each case pursuant to which we have agreed to file a registration statement with the SEC to facilitate potential future sales of such Ordinary Shares by them. Sales of Equity Securitiesa substantial number of the Ordinary Shares in the public markets, or even the perception that these sales might occur (such as upon the filing of the aforementioned registration statements), could impair our ability to raise capital for our operations through a future sale of, or pay for acquisitions using, our equity securities.
We may issue Ordinary Shares or other securities from time to time as consideration for future acquisitions and Useinvestments. If any such acquisition or investment is significant, the number of ProceedsOrdinary Shares, or the number or aggregate principal amount, as the case may be, of other securities that we may issue may in turn be substantial. We may also grant registration rights covering those Ordinary Shares or other securities in connection with any such acquisitions and investments.
We cannot predict the effect that future sales of Ordinary Shares will have on the price at which the Ordinary Shares trades or the size of future issuances of Ordinary Shares or the effect, if any, that future issuances will have on the market price of the Ordinary Shares. Sales of substantial amounts of the Ordinary Shares, or the perception that such sales could occur, may adversely affect the trading price of the Ordinary Shares.
Risks Related to the Merger
The integration of Pacific Drilling into the combined company may not be as successful as anticipated, and the combined company may not achieve the intended benefits or do so within the intended timeframe.
The Merger involves numerous operational, strategic, financial, accounting, legal, tax and other risks, including potential liabilities associated with the acquired business. Difficulties in integrating Pacific Drilling into the combined company may result in the combined company performing differently than expected, in operational challenges or in the delay or failure to realize anticipated expense-related efficiencies, and could have an adverse effect on the financial condition, results of operations or cash flows of Noble. Potential difficulties that may be encountered in the integration process include, among other factors:
• the inability to successfully integrate the businesses of Pacific Drilling into the combined company, operationally and culturally, in a manner that permits Noble to achieve the full revenue and cost savings anticipated from the Merger;
• complexities associated with managing a larger, more complex, integrated business;
• not realizing anticipated synergies;
• the inability to retain key employees and otherwise integrate personnel from the two companies and the loss of key employees;
• potential unknown liabilities and unforeseen expenses associated with the Merger;
• difficulty or inability to comply with the covenants of the debt of the combined company;
• integrating relationships with customers, vendors and business partners;
• performance shortfalls, including operating, safety, or environmental performance at one or both of the companies as a result of the diversion of management’s attention caused by completing the Merger and integrating Pacific Drilling’s operations into the combined company; and
• the disruption of, or the loss of momentum in, each company’s ongoing business or inconsistencies in standards, controls, procedures and policies.
Additionally, the success of the Merger will depend, in part, on the combined company’s ability to realize the anticipated benefits and cost savings from combining Noble’s and Pacific Drilling’s businesses. The anticipated benefits and cost savings of the Merger may not be realized fully or at all, may take longer to realize than expected or could have other adverse effects that Noble does not currently foresee. Some of the assumptions that Noble has made, such as the achievement of certain synergies, may not be realized.
As noted above, certain shareholders own a substantial percentage of the Ordinary Shares. Certain of such shareholders may also have received additional Ordinary Shares in the Merger. As a result, the risks relating to concentrated ownership of the Ordinary Shares, described above in, “—Risks Related to Our Business and Operations—Future sales or the availability for sale of substantial amounts of the Ordinary Shares, or the perception that these sales may occur, could adversely affect the trading price of the Ordinary Shares and could impair our ability to raise capital through future sales of equity securities,” would be increased.
Risks Related to the Second Lien Notes
Noble conducts substantially all of its business through Finco and its subsidiaries, and the indenture governing the Second Lien Notes contains operating and financial restrictions that may restrict Finco’s business and financing activities.
On the Effective Date, and pursuant to the terms of the Plan, Finco issued an aggregate principal amount of $216.0 million of Second Lien Notes. The Second Lien Notes are fully and unconditionally guaranteed, jointly and severally, on a senior secured second-priority basis, by the direct and indirect subsidiaries of Finco that are Credit Parties under the Revolving Credit Facility. The Second Lien Notes and such guarantees are secured by senior priority liens on the assets subject to liens securing the Revolving Credit Facility, including the equity interests in Finco and each guarantor of the Second Lien Notes, all of the rigs owned by the Company is only permitted to purchase its own shares by way of an “off-market purchase” in a plan approved by shareholders. Asas of the dateEffective Date or acquired thereafter, certain assets related thereto, and substantially all other assets of this report, noFinco and such plan has been approvedguarantors, in each case, subject to certain exceptions and during the three months ended September 30, 2017, there were no repurchases by Noble-UKlimitations. Neither Pacific Drilling nor any of its shares.subsidiaries is a subsidiary guarantor of the Revolving Credit Facility or the Second Lien Notes, and none of their assets secure the Revolving Credit Facility or the Second Lien Notes. Finco is entitled to pay interest on the Second
Lien Notes in the form of PIK Notes at its option in lieu of paying cash interest. As a result, we cannot assure you that Finco will make cash interest payments on the Second Lien Notes. The payment of interest through PIK Notes will increase the amount of Finco’s indebtedness and increase the risks associated with its level of indebtedness.
Noble conducts substantially all of its business through Finco and its subsidiaries. The primary restrictive covenants contained in the indenture under which the Second Lien Notes were issued limit Finco’s ability and the ability of certain of its subsidiaries to pay dividends or make other distributions or repurchase or redeem its capital stock and certain indebtedness, create liens securing certain indebtedness, incur certain indebtedness, consolidate, merge or transfer all or substantially all of its properties and assets, enter into transactions with affiliates and dispose of assets and use proceeds from the dispositions of assets.
Finco’s ability to comply with the covenants and restrictions contained in the indenture governing the Second Lien Notes may be affected by events beyond its control. If market or other economic conditions deteriorate, Finco’s ability to comply with these covenants and restrictions may be impaired. A failure to comply with the covenants, ratios or tests in the indenture governing the Second Lien Notes, if not cured or waived, could have a material adverse effect on Finco’s and our business, financial condition and results of operations. Finco’s existing and future indebtedness may have cross-default and cross-acceleration provisions. Upon the triggering of any such provision, the relevant creditor may:
• not be required to lend any additional amounts to Finco;
• elect to declare all borrowings outstanding due to them, together with accrued and unpaid interest and fees, to be due and payable (and, with respect to Finco’s secured indebtedness, foreclose on the collateral securing such indebtedness);
• elect to require that all obligations accrue interest at the default rate provided therein, if such rate has not already been imposed;
• have the ability to require Finco to apply all of its available cash to repay such borrowings; and/or
• prevent Finco from making debt service payments under its other agreements, any of which could result in an event of default under the Second Lien Notes.
If any of Finco’s existing indebtedness were to be accelerated, there can be no assurance that it would have, or be able to obtain, sufficient funds to repay such indebtedness in full. Even if new financing were available, it may be on terms that are less attractive to Finco than the Revolving Credit Facility or the Second Lien Notes or it may not be on terms that are acceptable to Finco.
Item 6. Exhibits
The information required by this Item 6 is set forth in the Index to Exhibits accompanyingfollowing exhibits are filed as part of this Quarterly Report on Form 10-Q and is incorporated herein by reference.
10-Q.
Index to Exhibits
| | | | | | | | |
Exhibit
Number | | Exhibit |
| | |
| 2.1 | | |
| | |
| 2.2 | | |
| | |
| 2.3 | | |
| | |
| 2.4 | | |
| | |
| 2.5† | | |
| | |
| 3.1 | | |
| | |
| 3.2 | | |
| | |
| 3.3 | | |
| | |
| 10.1 | | |
| | |
| 10.2† | | |
| | |
| 22.1 | | |
| | |
| 31.1 | | |
| | |
| 31.2 | | |
| | |
| 31.3 | | |
| | |
| 31.4 | | |
| | | | | | | | |
Exhibit
Number | | Exhibit |
| | |
| | |
| 32.1+ | | |
| | |
| 32.2+ | | |
| | |
| 32.3+ | | |
| | |
| 32.4+ | | |
| | |
| 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 Extension Calculation Linkbase Document. |
| | |
| 101.DEF | | Inline XBRL Taxonomy Extension Definition Linkbase Document. |
| | |
| 101.LAB | | Inline XBRL Taxonomy Extension Label Linkbase Document. |
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| 101.PRE | | Inline XBRL Taxonomy Extension Presentation Linkbase Document. |
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| 104 | | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). |
* Management contract or compensatory plan or arrangement.
† Certain portions of the exhibit have been omitted. The Company agrees to furnish a supplemental copy with any omitted information to the SEC upon request.
+ Furnished in accordance with Item 601(b)(32)(ii) of Regulation S-K.
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.
Noble Corporation, plc, a public limitedCayman Islands company incorporated under the laws of England and Wales
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/s/ David W. WilliamsRichard B. Barker | | November 3, 2017August 5, 2021 |
David W. Williams
Chairman, President and Chief Executive Officer
(Principal Executive Officer)
| | Date |
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/s/ Adam C. Peakes | | November 3, 2017 |
Adam C. Peakes
Richard B. Barker
Senior Vice President and Chief Financial Officer
(Principal Financial Officer)
| | Date |
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/s/ Thomas B Sloan Jr. | | November 3, 2017 |
Thomas B Sloan Jr.
Vice President and Controller
(Principal Accounting Officer)
| | Date |
Noble Corporation, a Cayman Islands company
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/s/ David W. WilliamsLaura D. Campbell | | November 3, 2017August 5, 2021 |
David W. Williams
Laura D. Campbell
Vice President, Chief Accounting Officer and Chief Executive Officer Controller
(Principal ExecutiveAccounting Officer) | | Date |
Noble Finance Company, a Cayman Islands company
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| /s/ Richard B. Barker | | August 5, 2021 |
/s/ Thomas B Sloan Jr. | | November 3, 2017 |
Thomas B Sloan Jr.
Richard B. Barker
Director, Senior Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
| | Date |
Index to Exhibits
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Exhibit
Number
/s/ Laura D. Campbell | | ExhibitAugust 5, 2021 |
Laura D. Campbell
Vice President and Controller
(Principal Accounting Officer) | | |
2.1 | | |
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2.2 | | |
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2.3 | | |
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2.4 | | |
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3.1 | | |
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3.2 | | |
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4.1 | | Revolving Credit Agreement dated as of January 26, 2015, among Noble-Cayman and Noble International Finance Company, a Cayman Islands company, as borrowers; JPMorgan Chase Bank, N.A., as administrative agent and a swingline lender; Wells Fargo Bank, National Association, as a swingline lender; the lenders party thereto; Barclays Bank PLC, Citibank, N.A., DNB Bank ASA New York Branch, HSBC Bank USA, N.A., SunTrust Bank and Wells Fargo, as co-syndication agents; BNP Paribas, Credit Suisse AG, Cayman Islands Branch and Mizuho Bank, Ltd, as co-documentation agents; and J.P. Morgan Securities LLC, Barclays Bank PLC, Citigroup Global Markets Inc., DNB Markets, Inc., HSBC Securities (USA) Inc., SunTrust Robinson Humphrey, Inc. and Wells Fargo Securities, LLC, as joint lead arrangers and joint lead bookrunners (filed as Exhibit 4.1 to Noble-UK’s Current Report on Form 8-K filed on January 29, 2015 and incorporated herein by reference). |
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4.2 | | |
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4.3 | | First Supplemental Indenture, dated as of March 16, 2015, among Noble Holding International Limited, as Issuer, Noble Corporation, as Guarantor, and Wells Fargo N.A., as Trustee, relating to 4.000% senior notes due 2018, 5.950% senior notes due 2025 and 6.95% senior notes due 2045 of Noble Holding International Limited (filed as Exhibit 4.2 to Noble-UK’s Current Report on Form 8-K filed on March 16, 2015 and incorporated herein by reference). |
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10.1* | | |
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10.2* | | |
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10.3 | | |
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31.1 | | Date |
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Exhibit
Number
| | Exhibit |
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31.2 | | |
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31.3 | | |
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32.1+ | | |
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32.2+ | | |
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32.3+ | | |
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101 | | Interactive Data File |
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* | Management contract or compensatory plan or arrangement. |
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+ | Furnished in accordance with Item 601(b)(32)(ii) of Regulation S-K. |