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Revenue from Contracts with Customers | 9 Months Ended
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Sep. 30, 2023
Revenue from Contract with Customer [Abstract] |
Revenue from Contract with Customer [Text Block] | Revenue from Contracts with Customers Our drilling contracts with customers provide a drilling rig and drilling services on a day rate contract basis. Under day rate contracts, we provide a drilling rig and rig crews for which we receive a daily rate that may vary between the full rate and zero rate throughout the duration of the contractual term, depending on the operations of the rig. We also may receive lump-sum fees or similar compensation generally for the mobilization, demobilization, and capital upgrades of our rigs. Our customers bear substantially all of the costs of constructing the well and supporting drilling operations, as well as the economic risk relative to the success of the well. Our drilling service provided under each drilling contract is a single performance obligation satisfied over time and comprised of a series of distinct time increments, or service periods. Total revenue is determined for each individual drilling contract by estimating both fixed and variable consideration expected to be earned over the contract term. Fixed consideration generally relates to activities such as mobilization, demobilization and capital upgrades of our rigs that are not distinct performance obligations within the context of our contracts and is recognized on a straight-line basis over the contract term. Variable consideration generally relates to distinct service periods during the contract term and is recognized in the period when the services are performed. The remaining duration of our drilling contracts based on those in place as of September 30, 2023 was between approximately 1 month and 5 years. Contract Termination - VALARIS DS-11 In 2021, a contract was awarded to VALARIS DS-11 for a project in the U.S. Gulf of Mexico that was expected to commence in mid-2024. In June 2022, the customer terminated the contract. As a result of the contract termination, we received an early termination fee of $51.0 million which is included in revenues on our Condensed Consolidated Statements of Operations for the nine months ended September 30, 2022. Contract Assets and Liabilities Contract assets represent amounts recognized as revenue but for which the right to invoice the customer is dependent upon our future performance. Once the previously recognized revenue is invoiced, the corresponding contract asset, or a portion thereof, is transferred to accounts receivable. Contract liabilities generally represent fees received for mobilization, capital upgrades or in the case of our 50/50 unconsolidated joint venture with Saudi Aramco, represent the difference between the amounts billed under the bareboat charter arrangements and lease revenues earned. See “Note 3 – Equity Method Investment in ARO" for additional details regarding our balances with ARO. Contract assets and liabilities are presented net on our Condensed Consolidated Balance Sheets on a contract-by-contract basis. Current contract assets and liabilities are included in Other current assets and Accrued liabilities and other, 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 summarizes our contract assets and contract liabilities (in millions):
| September 30, 2023 |  |  | December 31, 2022
Current contract assets | $ | 0.5 |  |  |  | $ | 4.6 |
Noncurrent contract assets | $ | 3.0 |  |  |  | $ | 0.7 |
Current contract liabilities (deferred revenue) | $ | 103.4 |  |  |  | $ | 78.0 |
Noncurrent contract liabilities (deferred revenue) | $ | 43.3 |  |  |  | $ | 41.0 |
Changes in contract assets and liabilities during the period are as follows (in millions):
| Contract Assets |  | Contract Liabilities
Balance as of December 31, 2022 | $ | 5.3 |  |  | $ | 119.0 |
Revenue recognized in advance of right to bill customer | 5.3 |  |  | — |
Increase due to revenue deferred during the period | — |  |  | 119.4 |
Decrease due to amortization of deferred revenue that was included in the beginning contract liability balance | — |  |  | (53.3) |
Decrease due to amortization of deferred revenue added during the period | — |  |  | (29.9) |
Decrease due to transfer to receivables and payables during the period | (7.1) |  |  | (8.5) |
Balance as of September 30, 2023 | $ | 3.5 |  |  | $ | 146.7 |
Deferred Contract Costs Costs incurred for upfront rig mobilizations and certain contract preparations are attributable to our future performance obligation under each respective drilling contract. These costs are deferred and amortized on a straight-line basis over the contract term. Deferred contract costs were included in Other current assets and Other assets on our Condensed Consolidated Balance Sheets and totaled $84.9 million and $57.3 million as of September 30, 2023 and December 31, 2022, respectively. During the three and nine months ended September 30, 2023, amortization of such costs totaled $25.0 million and $62.7 million, respectively. During the three and nine months ended September 30, 2022, amortization of such costs totaled $18.8 million and $41.0 million, respectively. Deferred Certification Costs We must obtain certifications from various regulatory bodies in order to operate our drilling rigs and must maintain such certifications through periodic inspections and surveys. The costs incurred in connection with maintaining such certifications, including inspections, tests, surveys and drydock, as well as remedial structural work and other compliance costs, are deferred and amortized on a straight-line basis over the corresponding certification periods. Deferred regulatory certification and compliance costs were included in Other current assets and Other assets on our Condensed Consolidated Balance Sheets and totaled $17.9 million and $16.2 million as of September 30, 2023 and December 31, 2022, respectively. During the three and nine months ended September 30, 2023, amortization of such costs totaled $3.2 million and $9.4 million, respectively. During the three and nine months ended September 30, 2022, amortization of such costs totaled $1.4 million and $2.5 million, respectively. Future Amortization of Contract Liabilities and Deferred Costs The table below reflects the expected future amortization of our contract liabilities and deferred costs recorded as of September 30, 2023. In the case of our contract liabilities related to our bareboat charter arrangements with ARO, the contract liability is not amortized and as such, the amount is reflected in the table below at the end of the current lease term. See "Note 3 - Equity Method Investment in ARO" for additional information on ARO and related arrangements.
| (In millions)
| Remaining 2023 |  | 2024 |  | 2025 |  | 2026 and Thereafter |  |  | Total
Amortization of contract liabilities | $ | 34.8 |  |  | $ | 95.3 |  |  | $ | 13.4 |  |  | $ | 3.2 |  |  |  | $ | 146.7 |
Amortization of deferred costs | $ | 32.9 |  |  | $ | 54.8 |  |  | $ | 10.8 |  |  | $ | 4.3 |  |  |  | $ | 102.8 |

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- Definition The entire disclosure of revenue from contract with customer to transfer good or service and to transfer nonfinancial asset. Includes, but is not limited to, disaggregation of revenue, credit loss recognized from contract with customer, judgment and change in judgment related to contract with customer, and asset recognized from cost incurred to obtain or fulfill contract with customer. Excludes insurance and lease contracts. + References Reference 1: http://www.xbrl.org/2003/role/disclosureRef -Topic 606 -SubTopic 10 -Name Accounting Standards Codification -Section 50 -Paragraph 9 -Publisher FASB -URI https://asc.fasb.org//1943274/2147479806/606-10-50-9 Reference 2: http://www.xbrl.org/2003/role/disclosureRef -Topic 606 -SubTopic 10 -Name Accounting Standards Codification -Section 50 -Paragraph 10 -Publisher FASB -URI https://asc.fasb.org//1943274/2147479806/606-10-50-10 Reference 3: http://www.xbrl.org/2003/role/disclosureRef -Topic 606 -SubTopic 10 -Name Accounting Standards Codification -Section 50 -Paragraph 15 -Publisher FASB -URI https://asc.fasb.org//1943274/2147479806/606-10-50-15 Reference 4: http://www.xbrl.org/2003/role/disclosureRef -Topic 606 -SubTopic 10 -Name Accounting Standards Codification -Section 50 -Paragraph 12 -Subparagraph (a) -Publisher FASB -URI https://asc.fasb.org//1943274/2147479806/606-10-50-12 Reference 5: http://www.xbrl.org/2003/role/disclosureRef -Topic 606 -SubTopic 10 -Name Accounting Standards Codification -Section 50 -Paragraph 12 -Subparagraph (b) -Publisher FASB -URI https://asc.fasb.org//1943274/2147479806/606-10-50-12 Reference 6: http://www.xbrl.org/2003/role/disclosureRef -Topic 606 -SubTopic 10 -Name Accounting Standards Codification -Section 50 -Paragraph 12 -Subparagraph (c) -Publisher FASB -URI https://asc.fasb.org//1943274/2147479806/606-10-50-12 Reference 7: http://www.xbrl.org/2003/role/disclosureRef -Topic 606 -SubTopic 10 -Name Accounting Standards Codification -Section 50 -Paragraph 12 -Subparagraph (d) -Publisher FASB -URI https://asc.fasb.org//1943274/2147479806/606-10-50-12 Reference 8: http://www.xbrl.org/2003/role/disclosureRef -Topic 606 -SubTopic 10 -Name Accounting Standards Codification -Section 50 -Paragraph 12 -Subparagraph (e) -Publisher FASB -URI https://asc.fasb.org//1943274/2147479806/606-10-50-12 Reference 9: http://www.xbrl.org/2003/role/disclosureRef -Topic 606 -SubTopic 10 -Name Accounting Standards Codification -Section 50 -Paragraph 13 -Subparagraph (b)(2) -Publisher FASB -URI https://asc.fasb.org//1943274/2147479806/606-10-50-13 Reference 10: http://www.xbrl.org/2003/role/disclosureRef -Name Accounting Standards Codification -Topic 606 -Publisher FASB -URI https://asc.fasb.org//606/tableOfContent + Details
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