XML 22 R10.htm IDEA: XBRL DOCUMENT
v3.22.2.2

Equity Method Investment In ARO Equity Method Investment In ARO | 9 Months Ended
--- | ---
Sep. 30, 2022
Equity Method Investments and Joint Ventures [Abstract] |
Equity Method Investment In ARO | Equity Method Investment in ARO Background ARO is a 50/50 unconsolidated joint venture between the Company and Saudi Aramco that owns and operates offshore drilling rigs in Saudi Arabia. As of September 30, 2022, ARO owns seven jackup rigs, has ordered two newbuild jackup rigs, and leases eight rigs from us through bareboat charter arrangements (the "Lease Agreements") whereby substantially all operating costs are incurred by ARO. At September 30, 2022, each of the leased rigs were operating under three-year drilling contracts with Saudi Aramco. The seven rigs owned by ARO are currently operating under contracts with Saudi Aramco for an aggregate contract term of 15 years provided that the rigs meet the technical and operational requirements of Saudi Aramco. ARO has plans to purchase 20 newbuild jackup rigs over an approximate 10-year period. In January 2020, ARO ordered the first two newbuild jackups, each with a shipyard price of $176.0 million. While the shipyard contract contemplated delivery of these newbuild rigs in 2022, we expect delivery of these rigs to be delayed into 2023. ARO is expected to place orders for two additional newbuild jackups in the near term. In connection with these plans, we have a potential obligation to fund ARO for newbuild jackup rigs. See "Note 11 - Contingencies" for additional information. The joint venture partners agreed in the shareholders' agreement that Saudi Aramco, as a customer, will provide drilling contracts to ARO in connection with the acquisition of the newbuild rigs. The initial contracts provided by Saudi Aramco for each of the newbuild rigs will be for an eight-year term. The day rate for the initial contracts for each newbuild rig will be determined using a pricing mechanism that targets a six-year payback period for construction costs on an EBITDA basis. The initial eight-year contracts will be followed by a minimum of another eight years of term, re-priced in three-year intervals based on a market pricing mechanism. Summarized Financial Information The operating revenues of ARO presented below reflect revenues earned under drilling contracts with Saudi Aramco for the ARO-owned jackup rigs as well as the rigs leased from us. Contract drilling expense is inclusive of the bareboat charter fees for the rigs leased from us. See additional discussion below regarding these related-party transactions. Summarized financial information for ARO is as follows (in millions):
|  | Three Months Ended |  | Nine Months Ended
|  | September 30, 2022 |  | September 30, 2021 |  | September 30, 2022 |  | September 30, 2021
Revenues |  | $ | 111.4 |  |  | $ | 117.7 |  |  | $ | 339.1 |  |  | $ | 365.2 |
Operating expenses |  |  |  |  |  |  |  |
Contract drilling (exclusive of depreciation) |  | 90.0 |  |  | 94.4 |  |  | 256.3 |  |  | 273.4 |
Depreciation |  | 15.4 |  |  | 16.8 |  |  | 47.3 |  |  | 47.5 |
General and administrative |  | 4.7 |  |  | 5.4 |  |  | 13.1 |  |  | 12.7 |
Operating income |  | 1.3 |  |  | 1.1 |  |  | 22.4 |  |  | 31.6 |
Other expense, net |  | 2.7 |  |  | 3.4 |  |  | 9.3 |  |  | 11.0 |
Provision (benefit) for income taxes |  | (0.1) |  |  | 0.2 |  |  | 3.1 |  |  | 6.6 |
Net income (loss) |  | $ | (1.3) |  |  | $ | (2.5) |  |  | $ | 10.0 |  |  | $ | 14.0 |
|  | September 30, 2022 |  | December 31, 2021
Cash and cash equivalents |  | $ | 173.5 |  |  | $ | 270.8 |
Other current assets |  | 145.6 |  |  | 135.0 |
Non-current assets |  | 800.9 |  |  | 775.8 |
Total assets |  | $ | 1,120.0 |  |  | $ | 1,181.6 |
Current liabilities |  | $ | 87.3 |  |  | $ | 79.9 |
Non-current liabilities |  | 879.5 |  |  | 956.7 |
Total liabilities |  | $ | 966.8 |  |  | $ | 1,036.6 |
Equity in Earnings of ARO We account for our interest in ARO using the equity method of accounting and only recognize our portion of ARO's net income, adjusted for basis differences as discussed below, which is included in Equity in earnings (losses) of ARO in our Condensed Consolidated Statements of Operations. ARO is a variable interest entity; however, we are not the primary beneficiary and therefore do not consolidate ARO. Judgments regarding our level of influence over ARO included considering key factors such as each partner's ownership interest, representation on the board of managers of ARO and ability to direct activities that most significantly impact ARO's economic performance, including the ability to influence policy-making decisions. Our investment in ARO would be assessed for impairment if there are changes in facts and circumstances that indicate a loss in value may have occurred. If a loss were deemed to have occurred and this loss was determined to be other than temporary, the carrying value of our investment would be written down to fair value and an impairment recorded. We have an equity method investment in ARO that was recorded at its estimated fair value at both the Effective Date and the date of our combination with our joint venture partner. We computed the difference between the fair value of ARO's net assets and the carrying value of those net assets in ARO's U.S. GAAP financial statements ("basis differences") on each of these dates. These basis differences primarily related to ARO's long-lived assets and the recognition of intangible assets associated with certain of ARO's drilling contracts that were determined to have favorable terms as of the measurement dates. Basis differences are amortized over the remaining life of the assets or liabilities to which they relate and are recognized as an adjustment to the Equity in earnings (losses) of ARO in our Condensed Consolidated Statements of Operations. The amortization of those basis differences is combined with our 50% interest in ARO's net income. A reconciliation of those components is presented below (in millions):
| Three Months Ended September 30, |  |  |
| 2022 |  | 2021 |  |  |
50% interest in ARO net income | $ | (0.7) |  |  | $ | (1.3) |  |  |  |
Amortization of basis differences | 3.6 |  |  | 3.9 |  |  |  |
Equity in earnings of ARO | $ | 2.9 |  |  | $ | 2.6 |  |  |  |
| Successor |  |  | Predecessor
| Nine Months Ended September 30, 2022 |  | Five Months Ended September 30, 2021 |  |  | Four Months Ended April 30, 2021
50% interest in ARO net income | $ | 5.0 |  |  | $ | 1.0 |  |  |  | $ | 6.0 |
Amortization of basis differences | 10.9 |  |  | 6.4 |  |  |  | (2.9) |
Equity in earnings of ARO | $ | 15.9 |  |  | $ | 7.4 |  |  |  | $ | 3.1 |
Related-Party Transactions Revenues recognized by us related to the Lease Agreements are as follows (in millions):
| Three Months Ended September 30, |  |  |  |  |  |  |
| 2022 |  | 2021 |  |  |  |  |  |  |
Lease revenue | $ | 13.8 |  |  | $ | 14.2 |  |  |  |  |  |  |  |
| Successor |  |  | Predecessor |  |  |  |
| Nine Months Ended September 30, 2022 |  | Five Months Ended September 30, 2021 |  |  | Four Months Ended April 30, 2021 |  |  |  |
Lease revenue | $ | 42.6 |  |  | $ | 24.5 |  |  |  | $ | 21.7 |  |  |  |  |
Amounts receivable from ARO related to the Lease Agreements totaled $8.2 million and $12.1 million as of September 30, 2022 and December 31, 2021, respectively, and are included in Accounts receivable, net, on our Condensed Consolidated Balance Sheets. We had $19.1 million and $36.3 million of Contract liabilities and Accounts payable, respectively, related to the Lease Agreements as of September 30, 2022. As of December 31, 2021, we had $10.8 million and $38.3 million of Contract liabilities and Accounts payable, respectively, related to the Lease Agreements. The per day bareboat charter amount in the Lease Agreements is subject to adjustment based on actual performance of the respective rig and as such Contract liabilities related to the Lease Agreements are subject to adjustment during the lease term. Upon completion of the lease term, such amount becomes a payable to or a receivable from ARO. During 2017 and 2018, the Company contributed cash to ARO in exchange for ten-year shareholder notes receivable with interest based on a one-year LIBOR rate, set as of the end of the year prior to the year applicable, plus two percent. The agreement entered into by us and Saudi Aramco to create ARO prohibits the sale or transfer of the shareholder note to a third party, except in certain limited circumstances. The principal amount, discount and interest receivable of the shareholder notes receivable from ARO were as follows (in millions):
| September 30, 2022 |  | December 31, 2021 |  |  |
Principal amount | $ | 402.7 |  |  | $ | 442.7 |  |  |  |
Discount | (155.8) |  |  | (193.6) |  |  |  |
Carrying value | $ | 246.9 |  |  | $ | 249.1 |  |  |  |
Interest receivable(1)(2) | $ | 8.6 |  |  | $ | — |  |  |  |
(1)Our interest receivable from ARO is included in Accounts receivable, net in our Condensed Consolidated Balance Sheet. (2)We collected our 2021 interest on our long-term notes receivable from ARO in cash prior to December 31, 2021, and as such, there was no interest receivable from ARO as of December 31, 2021. In September 2022, the Company received a principal payment of $40.0 million from ARO representing a partial early repayment of the shareholder notes receivable. In connection with this repayment, we recognized non-cash interest income of $14.8 million in the third quarter of 2022 for the discount attributable to this repayment. Interest income earned on the shareholder notes receivable were as follows (in millions):
| Three Months Ended September 30, |  |  |
| 2022 |  | 2021 |  |  |
Interest income | $ | 2.8 |  |  | $ | 2.7 |  |  |  |
Non-cash amortization | 22.4 |  |  | 6.9 |  |  |  |
Total interest income on the shareholder notes receivable | $ | 25.2 |  |  | $ | 9.6 |  |  |  |
| Successor |  |  | Predecessor
| Nine Months Ended September 30, 2022 |  | Five Months Ended September 30, 2021 |  |  | Four Months Ended April 30, 2021
Interest income | $ | 8.6 |  |  | $ | 4.4 |  |  |  | $ | 3.5 |
Non-cash amortization | 37.8 |  |  | 12.9 |  |  |  | — |
Total interest income on the shareholder notes receivable | $ | 46.4 |  |  | $ | 17.3 |  |  |  | $ | 3.5 |
Maximum Exposure to Loss The following table summarizes the total assets and liabilities as reflected in our Condensed Consolidated Balance Sheets as well as our maximum exposure to loss related to ARO (in millions). Our maximum exposure to loss is limited to (1) our equity investment in ARO; (2) the carrying amount of our shareholder notes receivable; and (3) other receivables and contract assets from ARO, partially offset by contract liabilities as well as payables to ARO.
| September 30, 2022 |  | December 31, 2021
Total assets | $ | 366.9 |  |  | $ | 348.1 |
Less: total liabilities | 55.4 |  |  | 49.1 |
Maximum exposure to loss | $ | 311.5 |  |  | $ | 299.0 |

X
- References No definition available. + Details
Name: | us-gaap_EquityMethodInvestmentsAndJointVenturesAbstract
Namespace Prefix: | us-gaap_
Data Type: | xbrli:stringItemType
Balance Type: | na
Period Type: | duration

X
- Definition The entire disclosure for equity method investments and joint ventures. Equity method investments are investments that give the investor the ability to exercise significant influence over the operating and financial policies of an investee. Joint ventures are entities owned and operated by a small group of businesses as a separate and specific business or project for the mutual benefit of the members of the group. + References Reference 1: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 323 -URI https://asc.fasb.org/topic&trid=2196965 + Details
Name: | us-gaap_EquityMethodInvestmentsDisclosureTextBlock
Namespace Prefix: | us-gaap_
Data Type: | dtr-types:textBlockItemType
Balance Type: | na
Period Type: | duration