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 March 31, 2023, 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.

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, and the delivery of these rigs is expected in 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 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. Cost incurred under the Secondment Agreement are included in Contract drilling expense and General and administrative, depending on the function to which the seconded employee's service related. See additional discussion below regarding these related-party transactions.


	Three Months Ended
	March 31, 2023		March 31, 2022
Revenues	$	123.6	$	111.3
Operating expenses
Contract drilling (exclusive of depreciation)	90.9		84.2
Depreciation	15.0		16.5
General and administrative	4.6		5.2
Operating income	13.1		5.4
Other expense, net	10.4		3.3
Provision for income taxes	1.9		0.7
Net income	$	0.8	$	1.4


	March 31, 2023		December 31, 2022
Cash and cash equivalents	$	101.2	$	176.2
Other current assets	189.3		140.6
Non-current assets	830.2		818.1
Total assets	$	1,120.7	$	1,134.9

Current liabilities	$	68.5	$	86.3
Non-current liabilities	887.4		884.6
Total liabilities	$	955.9	$	970.9

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 of ARO in our Condensed Consolidated Statements of Operations.

Our equity method investment in ARO was recorded at its estimated fair value at both the Effective Date and the date of our 2019 transaction where we acquired the subsidiary that held the joint venture interest. 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 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 March 31,
	2023		2022
50% interest in ARO net income	$	0.4	$	0.7
Amortization of basis differences	2.9		3.6
Equity in earnings of ARO	$	3.3	$	4.3

Revenues recognized by us related to the Lease Agreements were $18.8 million and $14.2 million for the three months ended March 31, 2023 and 2022, respectively.


	March 31, 2023		December 31, 2022
Amounts receivable (1)	$	16.9	$	12.0
Contract liabilities(2)	8.9		16.7
Accounts payable(2)	$	53.4	$	43.2

(2)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 the 10-year Notes Receivable from ARO based on a one-year LIBOR rate, set as of the end of the year prior to the year applicable, plus two percent.


	March 31, 2023		December 31, 2022
Principal amount	$	402.7	$	402.7
Discount	(141.7)		(148.7)
Carrying value	$	261.0	$	254.0

Interest receivable(1)(2)	$	7.5	$	—

(2)We collected our 2022 interest on the Notes Receivable from ARO in cash prior to December 31, 2022, and as such, there was no interest receivable from ARO as of December 31, 2022.


	Three Months Ended March 31,
	2023		2022
Interest income	$	7.5	$	2.8
Non-cash amortization	7.0		7.7
Total interest income on the Notes Receivable from ARO	$	14.5	$	10.5