Note 5—Revenues

Overview—The services we perform represent a single performance obligation under our drilling contracts with customers that is satisfied over time. We earn revenues primarily by performing the following activities: (i) providing our drilling rig, work crews, related equipment and services necessary to operate the rig (ii) delivering the drilling rig by mobilizing to and demobilizing from the drill location, and (iii) performing certain pre‑operating activities, including rig preparation activities or equipment modifications required for the contract.

We recognize revenues earned under our drilling contracts based on variable dayrates, which range from a full operating dayrate to lower rates or zero rates for periods when drilling operations are interrupted or restricted, based on the specific activities we perform during the contract on an hourly, or more frequent, basis. Such dayrate consideration is attributed to the distinct time period to which it relates within the contract term, and therefore, is recognized as we perform the services. We recognize reimbursement revenues and the corresponding costs as we provide the customer‑requested goods and services, when such reimbursable costs are incurred while performing drilling operations. Prior to performing drilling operations, we may receive pre‑operating revenues, on either a fixed lump‑sum or variable dayrate basis, for mobilization, contract preparation, customer‑requested goods and services or capital upgrades, which we recognize on a straight‑line basis over the estimated firm contract period. We recognize losses for loss contracts as such losses are incurred. We recognize revenues for demobilization or from contract terminations as we fulfill our obligations and all contingencies have been resolved.

The duration of our performance obligation varies by contract. At September 30, 2018, the expected remaining duration of our drilling contracts extends through February 2028, excluding unexercised options. In the three and nine months ended September 30, 2018, we recognized revenues of $54 million and $147 million, respectively, for performance obligations satisfied in previous periods, primarily related to our customer’s termination of the contract for Discoverer Clear Leader, effective November 2017, and certain revenues recognized on a cash basis.

We have taken the optional exemption that permits us to exclude disclosure of the estimated transaction price related to the variable portion of unsatisfied performance obligations at the end of the reporting period, as our transaction price is based on a single performance obligation consisting of a series of distinct hourly, or more frequent, periods, the variability of which will be resolved at the time of the future services.

To obtain contracts with our customers, we incur costs to prepare a rig for contract and deliver or mobilize a rig to the drilling location. We defer pre‑operating costs, such as contract preparation and mobilization costs, and recognize such costs on a straight‑line basis, consistent with the general pace of activity, in operating and maintenance costs over the estimated firm period of drilling. In the three and nine months ended September 30, 2018, we recognized costs of $14 million and $36 million, respectively, associated with pre‑operating costs for contracts with customers. In the three and nine months ended September 30, 2017, we recognized costs of $11 million and $35 million, respectively, associated with pre‑operating costs for contracts with customers. At September 30, 2018 and December 31, 2017, the unrecognized pre‑operating costs to obtain contracts was $10 million and $18 million, respectively, recorded in other assets.

Disaggregation—In the three and nine months ended September 30, 2018 and 2017, we recognized revenues as follows (in millions):


	Three months ended September 30, 2018												Three months ended September 30, 2017
	U.S.		U.K.		Norway		Brazil		Other		Total		U.S.		U.K.		Norway		Brazil		Other		Total

Ultra-deepwater floaters	$	396	$	—	$	—	$	1	$	86	$	483	$	368	$	—	$	—	$	39	$	116	$	523
Harsh environment floaters		—		37		174		—		54		265		8		62		15		—		33		118
Deepwater floaters		—		—		—		25		11		36		—		—		—		24		11		35
Midwater floaters		—		10		—		—		9		19		—		8		—		—		96		104
High-specification jackups		—		—		—		—		13		13		—		—		—		—		28		28
Total revenues	$	396	$	47	$	174	$	26	$	173	$	816	$	376	$	70	$	15	$	63	$	284	$	808


	Nine months ended September 30, 2018												Nine months ended September 30, 2017
	U.S.		U.K.		Norway		Brazil		Other		Total		U.S.		U.K.		Norway		Brazil		Other		Total

Ultra-deepwater floaters	$	1,162	$	—	$	—	$	1	$	168	$	1,331	$	1,167	$	—	$	—	$	198	$	244	$	1,609
Harsh environment floaters		—		88		467		—		166		721		8		197		54		—		89		348
Deepwater floaters		—		—		—		74		32		106		—		—		—		73		33		106
Midwater floaters		—		30		—		—		27		57		—		22		—		—		114		136
High-specification jackups		—		—		—		—		55		55		—		33		—		—		112		145
Total revenues	$	1,162	$	118	$	467	$	75	$	448	$	2,270	$	1,175	$	252	$	54	$	271	$	592	$	2,344

Contract liabilities—We recognize contract liabilities, recorded in other current liabilities and other long-term liabilities, for mobilization, contract preparation and capital upgrades using the straight‑line method over the remaining contract term. Contract liabilities for our contracts with customers were as follows (in millions):


	September 30,		January 1,
	2018		2018
Deferred contract revenues, recorded in other current liabilities	$	90	$	203
Deferred contract revenues, recorded in other long-term liabilities		408		422
Total contract liabilities	$	498	$	625

Significant changes in contract liabilities were as follows (in millions):


	Nine months
	ended
	September 30, 2018
Total contract liabilities, beginning of period		625
Decrease due to recognition of revenues for goods and services		(192)
Increase due to goods and services transferred over time		65
Total contract liabilities, end of period	$	498