Derivative Instruments

9 Months Ended

Sep. 30, 2021

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Our functional currency is the U.S. dollar. As is customary in the oil and gas industry, a majority of our revenues are denominated in U.S. dollars; however, a portion of the revenues earned and expenses incurred by certain of our subsidiaries are denominated in currencies other than the U.S. dollar. These transactions are remeasured in U.S. dollars based on a combination of both current and historical exchange rates. We previously used derivatives to reduce our exposure to various market risks, primarily foreign currency exchange rate risk.

The commencement of the Chapter 11 Cases constituted a termination event with respect to the Company’s derivative instruments, which permitted the counterparties of our derivative instruments to terminate their outstanding contracts. The exercise of these termination rights are not stayed under the Bankruptcy Code and the counterparties elected to terminate their outstanding derivatives with us in September 2020. As a result, we do not have derivative assets or liabilities on our Condensed Consolidated Balance Sheet as of December 31, 2020 (Predecessor). During the four months ended April 30, 2021 (Predecessor) and five months ended September 30, 2021 (Successor), we did not enter into derivative contracts; therefore, we do not have derivative assets or liabilities on our Condensed Consolidated Balance Sheet as of September 30, 2021.

We previously utilized cash flow hedges to hedge forecasted foreign currency denominated transactions, primarily to reduce our exposure to foreign currency exchange rate risk associated with contract drilling expense and capital expenditures denominated in various currencies.

Gains and losses, net of tax, on derivatives designated as cash flow hedges included in our Condensed Consolidated Statements of Operations and comprehensive loss were as follows (in millions):


	Gain Recognized in Other Comprehensive Loss ("OCI") on Derivatives (Effective Portion)				Gain Reclassified from ("AOCI") into Income (Effective Portion)(1)
	Successor		Predecessor			Successor		Predecessor
	Three Months Ended September 30, 2021		Three Months Ended September 30, 2020			Three Months Ended September 30, 2021		Three Months Ended September 30, 2020


Foreign currency forward contracts(2)	$	—	$	2.7		$	—	$	(.5)


	Loss Recognized in Other Comprehensive Loss ("OCI") on Derivatives (Effective Portion)						Gain Reclassified from ("AOCI") into Income (Effective Portion)(1)
	Successor		Predecessor				Successor		Predecessor
	Five Months Ended September 30, 2021		Four Months Ended April 30, 2021		Nine Months Ended September 30, 2020		Five Months Ended September 30, 2021		Four Months Ended April 30, 2021		Nine Months Ended September 30, 2020


Foreign currency forward contracts(3)	$	—	$	—	$	(5.4)	$	—	$	(5.6)	$	(11.5)

(1)Changes in the fair value of cash flow hedges are recorded in AOCI. Amounts recorded in AOCI associated with cash flow hedges are subsequently reclassified into contract drilling, depreciation or interest expense as earnings are affected by the underlying hedged forecasted transaction.

(2)During the three months ended September 30, 2020 (Predecessor), $0.5 million of gains were reclassified from AOCI into contract drilling expense and no gain or loss were reclassified from AOCI into depreciation expense in our Condensed Consolidated Statement of Operations.

(3)During the four months ended April 30, 2021 (Predecessor), $5.6 million of gains were reclassified from AOCI into impairment expense in our Condensed Consolidated Statement of Operations in connection with the impairment of certain rigs. During the nine months ended September 30, 2020 (Predecessor), $2.0 million of losses were reclassified from AOCI into contract drilling expense and $13.5 million of gains were reclassified from AOCI into depreciation expense in our Condensed Consolidated Statement of Operations.

We have net assets and liabilities denominated in numerous foreign currencies and use various methods to manage our exposure to foreign currency exchange rate risk. We predominantly structure our drilling contracts in U.S. dollars, which significantly reduces the portion of our cash flows and assets denominated in foreign currencies. Historically, we have occasionally entered into derivatives that hedge the fair value of recognized foreign currency denominated assets or liabilities but did not designate such derivatives as hedging instruments. In these situations, a natural hedging relationship generally existed whereby changes in the fair value of the derivatives offset changes in the fair value of the underlying hedged items. Net losses of $1.5 million and $0.2 million associated with our derivatives not designated as hedging instruments were included in other, net, in our Condensed Consolidated Statement of Operations for the three and nine months ended September 30, 2020 (Predecessor), respectively.