Note 7—Discontinued Operations

Summarized results of discontinued operations

The summarized results of operations included in income from discontinued operations were as follows (in millions):

	Three months ended June 30,						Six months ended June 30,
	2014			2013			2014			2013
Operating revenues	$	25		$	262		$	133		$	515
Operating and maintenance expense	(27		)	(269		)	(131		)	(534		)
Gain (loss) on disposal of assets in discontinued operations, net	—			3			(10		)	18
Loss from discontinued operations before income tax expense	(2		)	(4		)	(8		)	(1		)
Income tax expense	(5		)	(7		)	(7		)	(13		)
Loss from discontinued operations, net of tax	$	(7	)	$	(11	)	$	(15	)	$	(14	)

Assets and liabilities of discontinued operations

The carrying amounts of the major classes of assets and liabilities associated with our discontinued operations were classified as follows (in millions):

	June 30,		December 31,
	2014		2013
Assets
Materials and supplies, net	$	2	$	18
Other related assets	—		1
Assets held for sale	2		19
Other current assets	—		6
Total current assets	$	2	$	25

Liabilities
Deferred revenues	$	—	$	8
Other current liabilities	$	—	$	8

Standard jackup and swamp barge contract drilling services

Overview—In September 2012, in connection with our efforts to dispose of non-strategic assets and to reduce our exposure to low-specification drilling units, we committed to a plan to discontinue operations associated with the standard jackup and swamp barge asset groups, components of our contract drilling services operating segment.

Sale transactions with Shelf Drilling—In November 2012, we completed the sale of 38 drilling units to Shelf Drilling Holdings, Ltd. (“Shelf Drilling”). For a transition period following the completion of the sale transactions, we agreed to continue to operate a substantial portion of the standard jackups under operating agreements with Shelf Drilling and to provide certain other transition services to Shelf Drilling. Under the operating agreements, we have agreed to remit the collections from our customers under the associated drilling contracts to Shelf Drilling, and Shelf Drilling has agreed to reimburse us for our direct costs and expenses incurred while operating the standard jackups on behalf of Shelf Drilling with certain exceptions. Amounts due to Shelf Drilling under the operating agreements and transition services agreement may be contractually offset against amounts due from Shelf Drilling. The costs to us for providing such operating and transition services, including allocated indirect costs, have exceeded the amounts we have received from Shelf Drilling for providing such services.

Under the operating agreements, we agreed to continue to operate these standard jackups on behalf of Shelf Drilling until the earlier of expiration or novation of the underlying drilling contracts by Shelf Drilling. As of June 30, 2014, we operated two standard jackups under operating agreements with Shelf Drilling, and we expect to complete performing services under such operating agreements before December 31, 2014. Until the expiration or novation of such drilling contracts, we retain possession of the materials and supplies associated with the standard jackups that we operate under the operating agreements. In the three and six months ended June 30, 2014, we received cash proceeds of $22 million and $25 million, respectively, and recognized net gains of $1 million and $2 million, respectively, which had no tax effect, associated with the sale of equipment and materials and supplies to Shelf Drilling upon expiration or novation of the drilling contracts. In the three and six months ended June 30, 2013, we recognized a net gain of $3 million ($0.01 per diluted share), which had no tax effect, associated with the disposal of assets unrelated to rig sales. At June 30, 2014 and December 31, 2013, the materials and supplies associated with the drilling units that we operated under operating agreements with Shelf Drilling had an aggregate carrying amount of $2 million and $19 million, respectively. Under a transition services agreement, we provided certain transition services through May 2014.

For a period through November 2015, we agreed to provide to Shelf Drilling up to $125 million of financial support by maintaining letters of credit, surety bonds and guarantees for various contract bidding and performance activities associated with the drilling units sold to Shelf Drilling and in effect at the closing of the sale transactions. At the time of the sale transactions, we had $113 million of outstanding letters of credit, issued under our committed and uncommitted credit lines, in support of rigs sold to Shelf Drilling. Included within the $125 million maximum amount, we agreed to provide up to $65 million of additional financial support in connection with any new drilling contracts related to such drilling units. Shelf Drilling is required to reimburse us in the event that any of these instruments are called. At June 30, 2014 and December 31, 2013, we had $105 million and $104 million, respectively, of outstanding letters of credit, issued under our committed and uncommitted credit lines, in support of drilling units sold to Shelf Drilling. See Note 13—Commitments and Contingencies.

Other dispositions—During the six months ended June 30, 2013, we completed the sale of the Standard Jackups D.R. Stewart, Interocean III and GSF Adriatic VIII along with related equipment. In the six months ended June 30, 2013, in connection with the disposal of these assets, we received aggregate net cash proceeds of $63 million, and we recognized an aggregate net gain of $15 million ($0.04 per diluted share), which had no tax effect.

Drilling management services

Overview—In February 2014, in connection with our efforts to discontinue non-strategic operations, we completed the sale of ADTI, which performs drilling management services in the North Sea. As a result of the sale, we reclassified the results of operations of our drilling management services operating segment to discontinued operations for all periods presented. At December 31, 2013, the carrying amount of assets of the drilling management services operating segment was $6 million.

Disposition—In the six months ended June 30, 2014, we received net cash proceeds of $11 million associated with the sale of the drilling management services business. In the three and six months ended June 30, 2014, in connection with the sale, we recognized a net loss of $1 million and $12 million ($0.03 per diluted share), respectively, which had no tax effect. Following the completion of the sale transaction, we agreed to provide a limited guarantee in favor of one customer through completion of the current drilling project, which is expected to occur in the fourth quarter of 2014. We also agreed to provide a $15 million working capital line of credit to the buyer through March 2016. We earn interest on the outstanding borrowings at a fixed rate of 8.3 percent per annum, payable quarterly. At June 30, 2014, ADTI had borrowings of $15 million outstanding under the working capital line of credit, recorded in other assets.