Ch-
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2020
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the transition period from to
Commission file number 1-13926
DIAMOND OFFSHORE DRILLING, INC.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of incorporation or organization)
76-0321760
(I.R.S. Employer Identification No.)
15415 Katy Freeway
Houston, Texas 77094
(Address and zip code of principal executive offices)
(281) 492-5300
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Exchange Act: None
Securities registered pursuant to Section 12(g) of the Exchange Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☑
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☑
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 du r in g t he
preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the pa s t
90 days. Yes ☑ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitt ed pursuant to Rule 405 of Regulation S-T
during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or a n e m er gi n g
growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “s maller reporting company,” and “emerging growth company” in Rule 12b-2 o f
the Exchange Act.
Large accelerated filer
Non-accelerated filer
Emerging growth company
☐
☑
☐
Accelerated filer
Smaller reporting company
☐
☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised
financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over
financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit
report. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) Yes ☐ No ☑
State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common e qu it y
was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed s econd fiscal quarter.
Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date.
As of June 30, 2020
$16,882,138
As of February 4, 2021
Common Stock, $0.01 par value per share
138,054,311 shares
The information called for by Part III, Items 10, 11, 12, 13 and 14 of this Form 10-K, will be included in a definitive proxy statement or an amendment to this F or m
10-K to be filed within 120 days after the end of the fiscal year covered by this Form 10-K, and is incorporated herein by reference.
DOCUMENTS INCORPORATED BY REFERENCE
TABLE OF CONTENTS
Cover Page ...............................................................................................................................................................
Page No.
1
Document Table of Contents.................................................................................................................................
2
Part I
Item 1.
Business................................................................................................................................................
Item 1A.
Risk Factors ........................................................................................................................................
Item 1B.
Unresolved Staff Comments .............................................................................................................
Item 2.
Properties ............................................................................................................................................
Item 3.
Legal Proceedings ..............................................................................................................................
Item 4.
Mine Safety Disclosures ....................................................................................................................
Part II
Item 5.
Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities .........................................................................................................
Item 6.
Selected Financial Data .....................................................................................................................
Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of
Operations ...........................................................................................................................................
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk ...................................................
Item 8.
Financial Statements and Supplementary Data ............................................................................
Consolidated Financial Statements .................................................................................................
Notes to Consolidated Financial Statements..................................................................................
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure ............................................................................................................................................
Item 9A.
Controls and Procedures...................................................................................................................
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10
30
30
30
30
31
32
33
51
53
57
62
99
99
Item 9B.
Other Information..............................................................................................................................
100
Part III
Item 10.
Directors, Executive Officers and Corporate Governance..........................................................
Item 11.
Executive Compensation ...................................................................................................................
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters ..........................................................................................................................
Item 13.
Certain Relationships and Related Transactions, and Director Independence .......................
Item 14.
Principal Accounting Fees and Services .........................................................................................
Part IV
Item 15.
Exhibits and Financial Statement Schedules .................................................................................
Item 16.
Form 10-K Summary.........................................................................................................................
Signatures.................................................................................................................................................................
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101
101
101
101
102
104
105
Item 1. Business.
General
PART I
Diamond Offshore Drilling, Inc., incorporated in Delaware in 1989, provides contract drilling serv ices t o t h e
energy industry around the globe with a fleet of 13 offshore drilling rigs, consisting of four drillships and nine
semisubmersible rigs, including two cold-stacked semisubmersible rigs. Our current fleet excludes two p revio usly
impaired rigs, which we expect to sell in the first half of 2021. See “– Our Fleet – Fleet Status” and “– Ou r Fleet –
Fleet Enhancements.”
Unless the context otherwise requires, references in this report to “Diamond Offshore,” “we,” “u s” o r “o ur”
mean Diamond Offshore Drilling, Inc. and our consolidated subsidiaries.
Reorganization and Chapter 11 Proceedings
As previously disclosed, on April 26, 2020 (or the Petition Date), Diamond Offshore Drilling, Inc. (or the
Company) and certain of its direct and indirect subsidiaries (which we refer to, together with the Company , as t h e
Debtors) commenced voluntary cases (or the Chapter 11 Cases) for relief under chapter 11 (or Chapter 11) of title 11
of the United States Code (or the Bankruptcy Code) in the United States Bankruptcy Court for the Southern District
of Texas (or the Bankruptcy Court). The Chapter 11 Cases are being jointly administered und er t h e capt ion I n re
Diamond Offshore Drilling, Inc., et al., Case No. 20-32307 (DRJ).
Since the commencement of the Chapter 11 Cases, the Debtors have continued to op erat e o u r b usin ess a s a
“debtor-in-possession” under the jurisdiction of the Bankruptcy Court and in accordance with the applicable
provisions of the Bankruptcy Code and orders of the Bankruptcy Court. The Chapter 11 Cases constituted an ev ent
of default that accelerated our obligations under the following debt instruments (or the Debt Instruments):
•
•
•
•
•
the Indenture (or the Base Indenture), dated as of February 4, 1997, between the Company and The Bank of
New York Mellon Trust Company, N.A. (successor to The Bank of New York Mellon which was
previously known as The Bank of New York) (as successor under the Base Indenture to The Chase
Manhattan Bank), as trustee (the “Trustee”), as supplemented and amended by the Eigh t h Su pp lemental
Indenture (the “Eighth Supplemental Indenture”), dated as of November 5, 2013, between t h e C o mpan y
and the Trustee, governing the $250 million aggregate principal amount of outstanding 3.45% Senior Notes
due 2023;
the Base Indenture, as supplemented and amended by the Ninth Su p plemental I n d ent ure, d ated a s o f
August 15, 2017, between the Company and the Trustee, governing the $500 million aggrega te p rin cip al
amount of outstanding 7.875% Senior Notes due 2025;
the Base Indenture, as supplemented and amended by the Seventh Supplemental I n dent ure, d ated a s o f
October 8, 2009, between the Company and the Trustee, governing the $500 million aggregat e p rin cip al
amount of outstanding 5.70% Senior Notes due 2039;
the Base Indenture, as supplemented and amended by the Eighth Supplemental Indenture, go v ern ing t h e
$750 million aggregate principal amount of outstanding 4.875% Senior Notes due 2043; and
the senior 5-Year Revolving Credit Agreement, dated as of October 2, 2018, among Wells Fa rgo B a n k,
National Association, as administrative agent, an issuing lender and swingline len d er, t h e len ders p arty
thereto and the other parties thereto (or the Revolving Credit Agreement), under wh ich a n a ggregate o f
approximately $442 million in principal is outstanding.
The Debt Instruments provide that, as a result of the commencement of the Chapter 11 Cases, the principal a nd
accrued interest due thereunder shall be immediately due and payable. H o wever, a ny effo rts t o en force su ch
payment obligations under the Debt Instruments are automatically stayed as a result of the commencemen t o f t h e
Chapter 11 Cases, and the creditors’ rights of enforcement in respect of the Debt Inst rument s are su b ject t o t he
applicable provisions of the Bankruptcy Code.
3
On January 22, 2021, the Debtors entered into the Plan Support Agreement (o r PSA), a m o ng t h e Debt ors,
certain holders party thereto (or, collectively, the Consenting Noteholders) of the Company’s 3.45% Sen io r No t es
due 2023, 7.875% Senior Notes due 2025, 5.70% Senior Notes due 2039 and 4.875% Senior Notes due 2043
(collectively, the Senior Notes) and certain holders of claims (or collectively, the RCF Claims) under the Company’s
$950 million Revolving Credit Agreement, (or collectively, together with the Consenting Noteholders,
the Consenting Stakeholders). Concurrently, the Debtors entered into the Backstop Agreement (a s d ef ined in t h e
PSA) with certain holders of Senior Notes and also entered into the Commitment Letter (a s d efin ed b elow) wit h
certain holders of RCF Claims to provide exit financing upon emergence from bankruptcy.
The PSA requires the Consenting Stakeholders to support the proposed financial restructuring o f t h e Deb tors
consistent with the terms and conditions set forth in the Chapter 11 plan of reorganization attached as an ex hib it t o
the PSA (or the Plan), the Backstop Agreement attached as an exhibit to the PSA, and the commitment let t er f or a
revolving credit facility upon emergence from bankruptcy attached as an exhibit to the PSA (o r t h e C o mmitment
Letter), in each case, subject to and on the terms and conditions set forth in t h e PSA a n d t he ex hib it s at tach ed
thereto. The Debtors have agreed to seek approval of the Plan and complete their restructuring efforts subject to t h e
terms, conditions, and milestones contained in the PSA and otherwise comply with the terms and requirement s set
forth in the PSA. The PSA also provides for termination by the parties upon the occurrence of certain events.
Through the Restructuring contemplated in the PSA and the Plan, the Deb tors ex p ect t o emerge f rom t he
Chapter 11 Cases with a capital structure that we expect will position the Debtors for future success in the o ffsh ore
drilling industry.
As of the date of this report, the Debtors have not emerged from bankruptcy.
The Plan, the Backstop Agreement and the Commitment Letter remain subject to approval by the B an krupt cy
Court. Accordingly, no assurance can be given that the Restructuring and the Plan will be consummated.
On January 22, 2021, the Debtors filed the Plan and a related disclosure statement (or the Disclosure Statement)
with the Bankruptcy Court. On January 23, 2021, the Debtors also filed a motion seeking Bankruptcy Court
approval of the Debtors’ Disclosure Statement prepared in connection with soliciting votes to accept the Plan a nd a
separate motion seeking authority to enter into the Backstop Agreement and the Commitment Letter and approval of
the procedures to conduct the rights offering. A hearing on such motions is currently schedu led f or Feb ruary 2 6,
2021 at 9:30 a.m. (Central Time) before the Bankruptcy Court.
See “Risk Factors – Risks Related to Our Chapter 11 Cases” in Item 1A of this report, “Management’s
Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capit al R esou rces ” in
Item 7 of this report, Note 2 “Chapter 11 Proceedings – Chapter 11 Cases” and Note 18 “Subsequent Event” t o o ur
Consolidated Financial Statements included in Item 8 of this report.
Going Concern and Financial Reporting in Reorganization
The risks and uncertainties surrounding the Chapter 11 Cases, the defaults under our Debt Instruments, and t h e
weak industry conditions impacting our business raise substantial doubt as to our abilit y t o co nt inu e a s a go in g
concern. Accordingly, the audit report issued by our independent registered public a cco unt ing f irm co ntain s a n
explanatory paragraph expressing substantial doubt about our ability to continue as a going concern. The
accompanying Consolidating Financial Statements have been prepared in accordance with acco unt ing p rin cip les
generally accepted in the United States of America, which contemplate our continuation as a go in g co n cern. Fo r
additional information concerning our bankruptcy proceedings under Chapter 11, see Note 2 “Chapter 11
Proceedings” and Note 18 “Subsequent Event” to our Consolidated Financial Statements included in Item 8 of t his
report and “Risk Factors – Risks Related to Our Chapter 11 Cases” in Item 1A of this report.
Delisting of Common Stock from the New York Stock Exchange
Our common stock traded on the New York Stock Exchange, or NYSE, under the symbol “DO” until April 2 7 ,
2020, at which time it was removed from trading on the NYSE due to our voluntary filing of the Chapter 11
4
Cases. Our common stock subsequently commenced trading on the OTC Pin k Op en M arket u n der t h e t ra din g
symbol “DOFSQ”. See “Risk Factors – Risks Related to Our Chapter 11 Cases – The NYSE has delisted our
common stock. Trading in our securities during the pendency of the Chapter 11 Cases is h i g hly sp ecu lat ive a nd
poses substantial risks” in Item 1A of this report.
Our Fleet
Our fleet enables us to offer services in the floater market on a worldwide basis. A floater rig is a type of mobile
offshore drilling rig that floats and does not rest on the seafloor. This asset class includes self-propelled d rillsh ip s
and semisubmersible rigs.
Semisubmersible rigs are comprised of an upper working and living deck resting on vertical columns connected
to lower hull members. Such rigs operate in a “semi-submerged” position, remaining afloat, off bottom, in a position
in which the lower hull is approximately 55 feet to 90 feet below the water line a nd the upper deck p ro t rudes well
above the surface. Semisubmersibles hold position while drilling by use of a series o f sm all p ro p ulsio n u nit s o r
thrusters that provide dynamic positioning, or DP, to keep the rig on location, or with anchors t eth ered t o t h e sea
bed. Although DP semisubmersibles are self-propelled, such rigs may be moved long distances with the a ssistance
of tug boats. Non-DP, or moored, semisubmersibles require tug boats or the use o f a h eavy lif t v essel t o m ov e
between locations.
A drillship is an adaptation of a maritime vessel that is designed and constructed to carry out drilling operations
by means of a substructure with a moon pool centrally located in the hull. Drillships are typically self-propelled a nd
are positioned over a drill site through the use of a DP system similar to those used on semisubmersible rigs.
Fleet Status
The following table presents additional information regarding our floater fleet at February 1, 2021:
Rig Type and Name
DRILLSHIPS (4):
Rated Water
Depth
(in feet)(a)
Attributes
Year Built/
Redelivered (b)
Current
Location (c)
Customer (d)
Ocean BlackLion
Ocean BlackRhino
12,000
12,000
DP; 7R; 15K
DP; 7R; 15K
2015
2014
Ocean BlackHornet
Ocean BlackHawk
SEMISUBMERSIBLES
(9):
12,000
12,000
DP; 7R; 15K
DP; 7R; 15K
2014
2014
GOM
Canary
Islands/Senegal
GOM
GOM
BP
Mobilizing/Shipyard/Contract
Preparation/Woodside
BP
Occidental
Ocean GreatWhite
Ocean Va lor
Ocean Courage
10,000
10,000
10,000
DP; 6R; 15K
DP; 6R; 15K
DP; 6R; 15K
Ocean Monarch
Ocean Endeavor
Ocean Apex
10,000
10,000
6,000
15K
15K
15K
Ocean Onyx
Ocean Va liant
Ocean Patriot
6,000
5,500
3,000
15K
15K
15K
2016
2009
2009
2008
2007
2014
2013
1988
1983
Canary Islands Cold-Stacked
Brazil
Brazil
Warm-Stacked
Contract
Preparation/Petrobras
Posco
Myanmar
North Sea/U.K. Shell
Australia
Actively
Marketing/Woodside
Contract Preparation/Beach
Australia
North Sea/U.K. Cold-Stacked
North Sea/U.K. Apache
DP = Dynamically Positioned/Self-Propelled
6R = Six ram blow out preventer
Attributes
=
7R
15K =
2 Seven ram blow out preventers
15,000 psi well control system
5
(a) Rated water depth for drillships and semisubmersibles reflects the maximum water depth in which a floating rig
has been designed for drilling operations. However, individual rigs are capable of drilling, or h a v e d rilled , in
marginally greater water depths depending on various conditions (including, but not limited to, salin it y o f t h e
ocean, weather and sea conditions).
(b) Represents year rig was built and originally placed in service or year rig was redelivered with significant
enhancements that enabled the rig to be classified within a different floater category than originally constructed.
(c) GOM means U.S. Gulf of Mexico.
(d) For ease of presentation in this table, customer names have been shortened or abbreviat ed. Wa rm-stacked is
used to describe a rig that is idled (not contracted) and maintained in a “ready” state with a full crew t o en a ble
the rig to be quickly placed into service when contracted. Cold-stacked is used to describe an idled rig for which
steps have been taken to preserve the rig and reduce certain costs, such as crew costs and maintenance expenses.
Depending on the amount of time that a rig is cold-stacked, significant expenditures may be required t o ret urn
the rig to a “ready” state. Contract preparation is used to describe activities undertaken b y a rig t h a t is b ein g
made ready for a future contract and may include customer-requested modifications to the rig.
Markets
The principal markets for our offshore contract drilling services are:
•
the Gulf of Mexico, including the United States, or U.S., and Mexico;
• Canada;
• South America, principally offshore Brazil, and Trinidad and Tobago;
• Australia and Southeast Asia, including Malaysia, Myanmar and Vietnam;
• Europe, principally offshore the U.K.;
• East and West Africa; and
•
the Mediterranean.
We actively market our rigs worldwide. From time to time, our fleet operates in various other markets
throughout the world. See Note 17 “Segments and Geographic Area Analysis” to our Consolidated Financial
Statements in Item 8 of this report.
Offshore Contract Drilling Services
Our contracts to provide offshore drilling services vary in their terms and provisions. We typically o b tain o u r
contracts through a competitive bid process, although it is not unusual for us to be awarded drilling contracts
following direct negotiations. Our drilling contracts generally provide for a basic dayrate regardless o f wh ether o r
not drilling results in a productive well. Drilling contracts generally also provide for reductions in rates during
periods when the rig is being moved or when drilling operations are interrupted or restricted by equipment
breakdowns, adverse weather conditions or other circumstances. Under dayrate contract s, we gen erally p ay t h e
operating expenses of the rig, including wages and the cost of incidental supplies. Historically , d ay rat e con tract s
have accounted for the majority of our revenues. In addition, from time to time, our d a yrat e con tract s may a lso
provide for the ability to earn an incentive bonus from our customer based upon performance.
The duration of a dayrate drilling contract is generally tied to the time required to drill a single well or a gro u p
of wells, in what we refer to as a well-to-well contract, or a fixed period of time, in what we refer to as a term
contract. Our drilling contracts may be terminated by the customer in the event the drilling unit is destroyed or lo st ,
or if drilling operations are suspended for an extended period of time as a result of a breakdown of equipment o r, in
some cases, due to events beyond the control of either party to the contract. Certain of our contracts also permit t h e
customer to terminate the contract early by giving notice; in most circumstances this requires t h e p aymen t o f an
early termination fee by the customer. The contract term in many instances may also be extended by t he cu stomer
exercising options for the drilling of additional wells or for an additional length of time, generally subject to
mutually agreeable terms and rates at the time of the extension. In periods of decreasing demand for o f fshore rigs,
drilling contractors may prefer longer term contracts to preserve dayrates at existing levels and ensure u tiliza tio n,
6
while customers may prefer shorter contracts that allow them to more quickly obtain the benefit of declining
dayrates. Moreover, drilling contractors may accept lower dayrates in a declining market in order to obtain lo n ger -
term contracts and add backlog. See “Risk Factors – Risks Related to Our Business and Operations – We may not be
able to renew or replace expiring contracts for our rigs” and “Risk Factors – Risks Related t o Ou r Bu si ness a nd
Operations – Our business involves numerous operating hazards that could expose u s t o si g nif icant l o sses a n d
significant damage claims. We are not fully insured against all o f t hese ri sks a n d o ur co nt ractua l i n demnit y
provisions may not fully protect us,” in Item 1A of this report. For a discussion of our contract backlog, see
“Management’s Discussion and Analysis of Financial Condition and Results of Op erat io ns – C o nt ract Drillin g
Backlog” in Item 7 of this report.
Customers
We provide offshore drilling services to a customer base that includes m ajor a nd in d ep end ent o il a n d ga s
companies and government-owned oil companies. During 2020, 2019 and 2018, we performed services f or 1 0 , 1 2
and 13 different customers, respectively. During 2020, 2019 and 2018, our most sign if icant cu stomers were a s
follows:
Customer
Petróleo Brasileiro S.A.
BP
Occidental (formerly Anadarko)
Hess Corporation
Shell
Percentage of Annual Consolidated
Revenues
2019
2018
2020
21.2 %
20.5 %
20.1 %
10.7 %
10.2 %
19.5 %
3.1 %
20.6 %
28.9 %
5.2 %
15.8 %
10.5 %
33.8 %
25.0 %
1.0 %
No other customer accounted for 10% or more of our annual total consolidated revenues during 2020, 2 01 9 o r
2018. See “Risk Factors — Risks Related to Our Business and Operations – Our industry is highly competitive, with
an oversupply of drilling rigs and intense price competition” and “Risk Factors — Risks Related t o Ou r Bu siness
and Operations – Our customer base is concentrated” in Item 1A of this report.
As of January 1, 2021, our contract backlog was an aggregate $1.2 billio n a t t ribu table t o n in e cust omers,
compared to $1.6 billion as of January 1, 2020 attributable to ten customers. For the two-year period 2021 t o 2 0 22,
$0.5 billion (or 52%) of our current contracted backlog is attributable to future operations with two customers. Fo r
the years 2023 to 2024, $0.3 billion (or 100%) of our current contracted backlog is attributable to future operatio ns
with a single customer. See “Management’s Discussion and Analysis of Financial Condition and Results of
Operations – Contract Drilling Backlog” in Item 7 of this report. See “Risk Factors — Risks Related to Our Business
and Operations – We can provide no assurance that our drilling contracts will not be terminated early o r t h at o ur
current backlog of contract drilling revenue ultimately will be realized” in Item 1A of this report.
Competition
Based on industry data, as of the date of this report, there are approximately 730 mobile drilling rigs (drillship s,
semisubmersibles and jack-up rigs) in service worldwide, including approximately 210 floater rigs. Despite
consolidation in previous years, the offshore contract drilling industry remains highly competitive wit h n umerous
industry participants, none of which at the present time has a dominant market share. Some of our competitors may
have greater financial or other resources than we do.
Drilling contracts are traditionally awarded on a competitive bid basis. Price is typically the primary f act or in
determining which qualified contractor is awarded a job. Customers may also consider rig availability and locatio n,
a drilling contractor’s operational and safety performance record, and condition and suitability o f eq uipment. We
believe we compete favorably with respect to these factors.
We compete on a worldwide basis, but competition may vary significantly by region at any particular time. See
“Markets.” Competition for offshore rigs generally takes place on a global basis, as these rigs are mobile a nd may
be moved, although at a cost that may be substantial, from one region to another. It is characteristic of the o f fshore
drilling industry to move rigs from areas of low utilization and dayrates to areas of greater activit y and rela tiv ely
higher dayrates. The current oversupply of offshore drilling rigs also intensifies price competition. See “Risk Factors
7
– Risks Related to Our Business and Operations – Our industry is highly competitive, with an oversupply of drilli ng
rigs and intense price competition” in Item 1A of this report.
Governmental Regulation and Environmental Matters
Our operations are subject to numerous international, foreign, U.S., state and local laws a n d regu lat ion s t hat
relate directly or indirectly to our operations, including regulations controlling the discharge of materials in t o t h e
environment, requiring removal and clean-up under some circumstances, or otherwise relating to the prot ectio n o f
the environment, and may include laws or regulations pertaining to climate change, carbon emissions or energy use .
See “Risk Factors – Regulatory and Legal Risks – We are subject to extensive domestic and international la ws a n d
regulations that could significantly limit our business activities and revenues and increase our costs,” “Risk Factors
–– Regulatory and Legal Risks – Regulation of greenhouse gases and climate change could have a negative impact
on our business” and “Risk Factors – Regulatory and Legal Risks – If we, or our customers, are unable t o a cq uire
or renew permits and approvals required for drilling operations, we may be forced to delay, suspend or cea se o u r
operations” in Item 1A of this report.
Human Capital
Employees
As of December 31, 2020, we managed a global workforce of approximately 1,900 persons including
international crew personnel, a portion of whom are furnished through independent labor contractors. A p o rt io n o f
our workforce outside of the U.S. is represented by collective bargaining agreements. As of December 3 1 , 2 02 0,
over 75% of our global workforce had been employed by us for five years or more, with an average tenu re o f 1 1 .5
years.
Core Values and Culture
Our global culture is shaped by our Values & Behaviors:
• Take Ownership – Run to the challenge; deliver on what you promise.
• Go Beyond – Solve tomorrow’s problems today; make it better than you found it.
• Have Courage – Challenge conventional thinking; speak up, even when it’s tough.
• Exercise Care – Respect that every action has consequences; never cut corners.
• Win Together – Learn from each other; share success; champion a “Culture of We.”
These core values establish the foundation for our culture and represent the key expectat io ns we h av e o f o ur
employees. Our commitment to Health, Safety and the Environment (or HSE) applies throughout our b usin ess. I n
addition, we recognize the importance of identifying, assessing and promoting Environmental, Social and
Governance (or ESG) issues as a fundamental part of conducting business.
Along with our core values, we expect our employees to act in accordance with our Code of Business C ond uct
and Ethics, which we refer to as our Code of Conduct. Our Code of Conduct covers topics such as legal compliance,
conflicts of interest, accuracy of financial reporting and disclosure, confidentiality, discrimination and harassment ,
anti-corruption, safety and health and reporting ethical violations. The Code of Conduct reflects our commitment t o
operating in a fair, honest, responsible and ethical manner and also provides direction for reporting complaints in t he
event of alleged violations of our policies (including through an anonymous hotline).
Talent Management Approach
We take a systemic approach to hiring, training and developing our employees. This includes creat ing go a ls
aligned to company priorities a nd providing employees periodic feedback in order to assess and ad just in d ivid ual
performance. We also employ a succession planning process that identifies suitable candidates, and their
development needs, for key positions in the company. The succession plan is generally reviewed annually.
8
We provide a comprehensive training program that ensures employees on our rig crews receive position -specific
training as an integral part of their career development. We utilize a competency verification program for
establishing and verifying the knowledge, skills and abilities needed by each employee to perform their assigned job
function in a safe and environmentally sound manner.
Safety and Training
The safety of our employees and stakeholders is our highest priority. We pride ourselves on being an innovative
leader in the development and implementation of sophisticated and efficient job safety programs. We not only try t o
work safely; we strive to achieve zero incident operations, or ZIO, through our comprehensive safety in it iat ives.
Achieving ZIO means operating at peak performance and completing each task without h arm t o o u r p eop le, t h e
environment or our equipment.
Information About Our Executive Officers
We have included information on our executive officers in Part I of this report in reliance on General Instruction
G(3) to Form 10-K. Our executive officers are elected annually by our Board of Directors and serve at the discretion
of our Board of Directors until their successors are duly elected and qualified, or until their earlier death, resignation,
disqualification or removal from office. Information with respect to our executive officers is set forth below.
Name
Marc Edwards
Ronald Woll
David L. Roland
Jon L. Richards
Scott Kornblau
Dominic A. Savarino
Age as of
January 31, 2021
60
53
59
47
49
50
Position
President, Chief Executive Officer and Chairman of the Board
Executive Vice President and Chief Operating Officer
Senior Vice President, General Counsel and Secretary
Senior Vice President – Worldwide Operations
Senior Vice President and Chief Financial Officer
Vice President and Chief Accounting & Tax Officer
Marc Edwards has served as our President, Chief Executive Officer and Chairman o f t he B oard sin ce May
2020, Mr. Edwards previously served as our President and Chief Executive Officer and as a Director sin ce M arch
2014.
Ronald Woll has served as our Executive Vice President and Chief Operating Officer since May 2020. Mr. Woll
previously has served as our Executive Vice President and Chief Commercial Officer from January 1 , 2 0 19 u n til
April 2020 and as our Senior Vice President and Chief Commercial Officer from June 2014 until December 2018.
David L. Roland has served as our Senior Vice President, General Counsel and Secretary since September 2014.
Jon L. Richards has served as our Senior Vice President – Worldwide Operations since April 2020. Mr.
Richards previously served as our Vice President – Worldwide Operations since January 2014.
Scott Kornblau has served as our Senior Vice President and Chief Financial Officer since July 2018. Mr.
Kornblau previously served as our Vice President, Acting Chief Financial Officer and Treasurer sin ce December
2017, Vice President and Treasurer from January 2017 until December 2017 and Treasurer f rom Ju ly 2 007 u nt il
January 2017.
Dominic A. Savarino has served as our Vice President and Chief Accounting & Tax Officer sin ce M ay 2 020 .
Mr. Savarino previously served as our Vice President and Chief Tax Officer since November 2017. Prior to jo in in g
Diamond Offshore, Mr. Savarino served as Vice President, Tax at Baker Hughes, Inc. from 2016 to 2017 and held a
variety of positions at McDermott International, Inc., including Vice President, Tax from 2015 to 2016.
9
Access to Company Filings
We are subject to the informational requirements of the Securities Exchange Act of 1934, as amend ed , o r t h e
Exchange Act, and accordingly file annual, quarterly and current reports on Forms 10-K, 10-Q and 8-K,
respectively, any amendments to those reports, proxy statements and other in f o rmat ion wit h t h e Un it ed St ates
Securities and Exchange Commission, or SEC. Our SEC filings are available to the public from the SEC’s I nt ern et
site at www.sec.gov or from our Internet site at www.diamondoffshore.com. Our website provides a hyperlin k t o a
third-party SEC filings website where these reports may be viewed and printed at no cost as so o n a s reasonably
practicable after we have electronically filed such material with, or furnished it to, the SEC. The preceding In ternet
addresses and all other Internet addresses referenced in this report are for information purp oses o n ly and are n o t
intended to be a hyperlink. Accordingly, no information found or provided at su ch I nt ern et ad dresses o r a t o ur
website in general (or at other websites linked to our website) is intended or deemed to be inco rporated by reference
in this report.
Item 1A. Risk Factors.
Our business is subject to a variety of risks and uncertainties, including those described below, that could have a
material adverse effect on our business, reputation, financial condition, results of operations, cash flows (in clu din g
negative cash flows), prospects and the trading price of our securities. You should carefully co nsid er t h ese risk s
when evaluating us and our securities. The following material risks and uncertainties are not the o n ly o nes facin g
our company. We are also subject to other risks and uncertainties not known to us or not described below as well a s
a variety of risks that affect many other companies generally that may also have a material a dverse eff ect o n o ur
business, reputation, financial condition, results of operations, cash flows (including negative cash flows), prospect s
and the trading price of our securities.
Risk Factors Summary
The following is a summary of the principal risks that could adversely affect o ur b u sin ess, o p eratio ns a nd
financial results.
Risks Related to Our Chapter 11 Cases
•
If we are not able to obtain confirmation of the Plan or another Chapter 11 plan o f reo rgan izat ion , o r if
current liquidity is insufficient or exit financing is not available, we could be required t o liq u id at e u n der
Chapter 7 of the Bankruptcy Code.
• The Plan is, and any other plan of reorganization would be, based in la rge p a rt u p on a ssumptio ns a nd
analyses developed by us; if these assumptions and analyses prove to be incorrect, our Plan or su ch o t her
plan may be unsuccessful in its execution.
• The Chapter 11 Cases may have a material adverse impact on us and on the trading price of, and may result
in the cancellation and discharge of, our securities, including our common stock. If approved by the
Bankruptcy Court, a plan of reorganization will govern distributions to and the recoveries of holders of ou r
securities.
• We are subject to the risks and uncertainties associated with our Chapter 11 proceedings.
• As a result of the Chapter 11 Cases, the realization of our assets and liquidation of our liab ilities are subject
to uncertainty, and our historical financial information will not be indicative of our future financial
performance.
• We may be subject to claims that will not be discharged in the Chapter 1 1 C ases, wh ich cou ld h ave a
material adverse effect on us.
• Operating under Chapter 11 may restrict our ability to pursue our business strategies.
• The pursuit of the Chapter 11 Cases has consumed, and will continue to consume, a substantial po rt ion o f
the time and attention of our corporate management a nd will impact how our business is conducted, wh ich
may have a material adverse effect on us, and we may face increased levels of employee attrition.
• Even if a Chapter 11 plan of reorganization is consummated, we may not be able t o a ch ieve o ur st at ed
goals and continue as a going concern.
• Trading in our securities during the pendency of the Chapter 11 Cases is h igh ly sp ecu lat iv e a nd p o ses
substantial risks. The NYSE has delisted our common stock. It is likely tha t o ur co mmon st o ck will b e
10
cancelled and that holders of such common stock will not receive any distribution wit h resp ect t o , o r b e
able to recover any portion of, their investments.
Risks Related to Our Business and Operations
• The impacts of the COVID-19 pandemic and efforts to mitigate the spread of the virus have had a materia l
adverse effect on and are expected to continue to have a material adverse effect on us.
• The current protracted downturn in our industry may continue into the foreseeable future, a nd we ca nnot
predict if or when it will end.
• The worldwide demand for drilling services has historically been dependent on the price o f o il a n d, a s a
result of low oil prices, demand continued to be depressed in 2020 as the pro tracted downturn in our
industry continues.
• Our business depends on the level of activity in the offshore oil and gas industry, which has been cyclical,
is currently in a protracted downturn and is significantly affected by many factors outside of our control.
• Our industry is highly competitive, with an oversupply of drilling rigs and intense price competition.
• We can provide no assurance that our drilling contracts will not be terminated early o r t hat o u r cu rrent
backlog of contract drilling revenue ultimately will be realized.
• We may not be able to renew or replace expiring contracts for our rigs.
• Our customer base is concentrated.
• Our contract drilling expense includes fixed costs that will not decline in prop o rtio n t o d ecreases in rig
utilization and dayrates.
• We must make substantial capital and operating expenditures to reactivate, build, maintain and upgrade our
drilling fleet.
• Our business involves numerous operating hazards that could expose us to significant losses and significant
damage claims. We are not fully insured against all of these risks and our contractual indemnity provisions
may not fully protect us.
• Any significant cyber-attack or other interruption in network security or the operation of critical
information technology systems could materially disrupt our operations and adversely affect our business.
• Acts of terrorism, piracy and political and social unrest could affect the markets for drilling services, which
may have a material adverse effect on us.
• We rely on third parties to secure and service equipment, components and parts u sed in rig o p era t ion s,
conversions, upgrades and construction.
• Contracts for our drilling rigs are generally fixed dayrate contracts, and increases in o u r o p eratin g co st s
could adversely affect our profitability.
• Failure to obtain and retain highly skilled personnel could hurt our operations.
Financial and Tax Risks
• We may incur additional asset impairments and/or rig retirements as a result of reduced demand for certain
offshore drilling rigs.
• Changes in tax laws and policies, effective income tax rates or adverse outcomes resulting from
examination of our tax returns could adversely affect our financial results.
• Our consolidated effective income tax rate may vary substantially from one reporting period to another.
• Changes in accounting principles and financial reporting requirements could adversely affect us.
Regulatory and Legal Risks
• We are subject to extensive domestic and international laws and regulations that could significant ly lim it
our business activities and revenues and increase our costs.
• Any future regulations relating to greenhouse gases and climate change could have a negat ive im pact o n
•
our business.
If we, or our customers, are unable to acquire or renew permits and approvals required for drilling
operations, we may be forced to delay, suspend or cease our operations.
• Significant portions of our operations are conducted outside the U.S. a n d in v olv e a ddit io nal risk s n o t
associated with U.S. domestic operations.
11
• We may be subject to litigation and disputes that could have a material adverse effect on us.
For a more complete discussion of the material risks facing our business, see below.
Risks Related to Our Chapter 11 Cases
If we are not able to obtain confirmation of the Plan or another Chapter 11 plan of reorganization, or if current
liquidity is insufficient or exit financing is not available, we could be required to l iquidate under Chapter 7 of the
Bankruptcy Code.
In order to successfully emerge from Chapter 11 bankruptcy protection, we m u st o b tain con firmatio n o f a
Chapter 11 plan of reorganization by the Bankruptcy Court. If confirmation by the Bankruptcy Court does not occur,
we could be forced to liquidate under Chapter 7 of the Bankruptcy Code.
There can be no assurance that our current cash position and amounts of cash from future o peratio ns will b e
sufficient to fund operations. In the event that we do not have sufficient cash to meet our liquidity requirements o r
exit financing is not available, we may be required to seek additional financing. There can be no assurance that such
additional financing would be available, or, if available, would be available on acceptable terms. Failu re t o secu re
any necessary exit financing or additional financing would have a material adverse effect o n o u r o p eratio ns a nd
ability to continue as a going concern.
Upon a showing of cause, the Bankruptcy Court may convert our Chapter 11 Cases to a case under Chapter 7 of
the Bankruptcy Code. In such event, a Chapter 7 trustee would be appointed or elected to liquid ate o u r assets f o r
distribution in accordance with the priorities established by the Bankruptcy Code. We believe that liquid ation under
Chapter 7 would result in significantly smaller distributions being made to our creditors t han t ho se p ro vid ed f or
in the Plan or another Chapter 11 plan of reorganization because of (i) the likelihood that the assets would have to be
sold or otherwise disposed of in a distressed fashion over a short period of time rather than in a controlled mann er
and as a going concern, (ii) additional administrative expenses involved in the appointment of a Chapter 7 t ru stee,
and (iii) additional expenses and claims, some of which would be entitled to priority, that would be generated during
the liquidation and from the rejection of leases and other executory contracts in co n nectio n wit h a cessatio n o f
operations.
The Plan is, and any other plan of reorganization would be, based in large part upon assumptions and a na lyses
developed by us; if these assumptions and analyses prove to be incorrect, our Plan or such o t her p l an ma y b e
unsuccessful in its execution.
The Plan that we are seeking to implement will affect both our capital structure and the ownership, structure and
operation of our businesses and reflects assumptions and analyses based o n o u r ex perience a nd p erceptio n o f
historical trends, current conditions and expected future developments, as well as other f act ors t hat we co n sider
appropriate under the circumstances. Whether actual future results and developments will be co n sist en t wit h o u r
expectations and assumptions depends on a number of factors, including but not limited to:
• our ability to substantially change our capital structure;
• our ability to obtain adequate liquidity and access financing sources;
• our ability to maintain customers’ confidence in our viability as a continuing entity and to attract and retain
sufficient business from them;
• our ability to retain key employees; and
•
the overall strength and stability of general economic and financial conditions and the oil and gas
industries, both in the U.S. and in global markets.
The failure of any of these factors could have a material adverse effect on the successful reorganizatio n o f o u r
business.
In addition, the Plan relies upon, and any other plan would rely upon, financial p ro j ectio ns, in clu d in g wit h
respect to revenues, earnings, capital expenditures, debt service and cash flow. Financial forecasts a re n ecessarily
12
speculative, and it is likely that one or more of the assumptions and estimates that are the basis o f t h ese f inan cial
forecasts will not be entirely accurate. The forecasts may be even more speculativ e t han n ormal, b ecaus e t h ey
involve fundamental changes in our capital structure. Accordingly, we expect that our actual financial condition and
results of operations will differ, perhaps materially, from what we have anticipated. Consequently, there ca n b e n o
assurance that the results or developments contemplated by the Plan or any other plan of reo rgan izat ion we m ay
implement will occur or, even if they do occur, that they will have the anticipated effects on us and our subsidiaries
or our business or operations. The failure of any such results or developments to materialize a s ant icipat ed cou ld
have a material adverse effect on the successful execution of the Plan or any other plan of reorganization.
The Chapter 11 Cases may have a material adverse impact on our business, fi nancial condition, results of
operations, and cash flows. In addition, the Chapter 11 Cases may have a material adverse impact on the trading
price and may result in the cancellation and discharge of our securities, including our common stock. If
approved by the Bankruptcy Court, a plan of reorganization will govern distributions to a nd t he reco veries o f
holders of our securities.
We commenced our Chapter 11 Cases in the Bankruptcy Court on April 26, 2020 and filed our Plan of
reorganization with the Bankruptcy Court on January 22, 2021. The Plan has not yet been confirmed by the
Bankruptcy Court.
The Chapter 11 Cases could have a material adverse effect on our business, f in ancial co nd it ion, resu lt s o f
operations and liquidity. So long as the Chapter 11 Cases continue, our management may b e req uired t o sp end a
significant amount of time and effort dealing with the restructuring while at the same time attending to our busin ess
operations. Bankruptcy Court protection and operating as debtors in possession also may make it more d iff icult t o
retain management and the key personnel necessary to the success and growth of our business. In addit ion , d urin g
the pendency of the Chapter 11 Cases, our customers and suppliers might lose confidence in our ability to reo rganize
our business successfully and may seek to establish alternative commercial relationships, which may cause, amon g
other things, our suppliers, vendors, counterparties and service providers to renegotiate the terms of our agreements,
attempt to terminate their relationship with us or require financial assurances from us. Customers may lose
confidence in our ability to provide them the level of service they expect, resulting in a significa nt d eclin e in o u r
revenues and cash flow.
We are subject to the risks and uncertainties associated with our Chapter 11 proceedings.
As more fully described elsewhere in this report, the Debtors filed voluntary petitions to reorganize under
Chapter 11 on April 26, 2020. During our Chapter 11 Cases, we continue to operate ou r b usin ess a s d ebto rs -in -
possession under the jurisdiction of the Bankruptcy Court and in accordance wit h t h e ap plicable p ro visio ns o f
Chapter 11. As a consequence of our Chapter 11 filing, our operations, including our ability to develop and execut e
our business plan, and our continuation as a going concern, will be subject to the risks and uncertainties associa ted
with bankruptcy. These risks include, but are not limited to, the following:
• our ability to successfully develop, prosecute, confirm and consummate a p lan o f reo rganizatio n wit h
respect to the Chapter 11 proceedings;
• our ability to obtain the Bankruptcy Court’s approval with respect to motions or other requests made to t h e
Bankruptcy Court in the Chapter 11 Cases, including maintaining stra tegic control as debtors-in-
possession;
the high costs of bankruptcy proceedings and related fees;
•
• our ability to obtain acceptable and sufficient financing to allow us to emerge from bankruptcy and execute
our business plan post-emergence, and our ability to comply with the terms and conditions of that
financing;
• our ability to maintain contracts that are critical to our operations on rea so nably acceptable t erms a nd
conditions;
• our ability to execute our business plan in the current depressed commodity price environment;
•
the ability of third parties to seek and obtain court approval to terminate contracts and o t her a greemen ts
with us; and
13
•
the possibility that the Chapter 11 proceedings will disrupt or impede our international operations.
Delays in the Chapter 11 proceedings increase the risks of our inability to reorganize our business and em erge
from bankruptcy and may increase our costs associated with the bankruptcy process.
These risks and uncertainties could affect our business and operations in various ways. For example, n egat iv e
publicity associated with the Chapter 11 proceedings could adversely affect our relatio nship s wit h o u r v endo rs,
suppliers, service providers, customers, employees and other third parties, which in turn could adversely af f ect o u r
operations and financial condition. In particular, critical suppliers, vendors and customers may determine n ot t o d o
business with us due to the Chapter 11 proceedings. In addition, certain transactions may also require the consent o f
lenders under any subsequent debtor-in-possession financing. Also, during the pendency of any Chapter 11
proceedings, we will need the prior approval of the Bankruptcy Court for certain transactions outside t h e o rdin ary
course of business, which may limit our ability to respond timely to certain events o r t a ke ad vantage o f cert ain
opportunities. Additionally, losses of key personnel or erosion of employee morale could have a mat erial a d verse
effect on our ability to meet customer expectations, thereby adversely affectin g our business and results of
operations. Because of the risks and uncertainties associated with a voluntary filing for relief under C h apter 1 1 o f
the Bankruptcy Code and the related proceedings, we cannot accurately predict or quantify the ultimate impact t hat
events that occur during our Chapter 11 Cases may have on our business, financial condition and results of
operations, and there is no certainty as to our ability to continue as a going concern.
As a result of the Chapter 11 Cases, the realization of our assets and liquidation of our liabilities a re sub ject t o
uncertainty, and our historical financial information will not be indicative of our future financial performance.
If a plan of reorganization, including the Plan, is ultimately confirmed by the Bankruptcy C o urt , o ur ca pit al
structure will likely be significantly altered under such plan (whether or not following a sale of our business or
certain of our material assets pursuant to Section 363 of the Bankruptcy Code). Under fresh-start acco unt ing ru les
that may apply to us upon the effective date of a plan of reorganization, our assets and liabilities would be ad just ed
to fair values and our accumulated earnings would be restated to zero. Accordingly, if fresh -start accoun tin g ru les
apply, our financial condition and results of operations following our emergence fro m C hapt er 1 1 wo u ld n ot b e
comparable to the financial condition and results of operations reflected in ou r h ist o rical f in ancial st at ements.
Further, a plan of reorganization, including the Plan, could materially ch ange t he amo unt s and classif icat io ns
reported in our consolidated historical financial statements, which do not give ef fect t o any ad justment s t o t he
carrying value of assets or amounts of liabilities that might be necessary as a consequence of confirmation of a p la n
of reorganization.
While operating under the protection of the Bankruptcy Code, and subject to Bankrupt cy C ou rt a ppro val o r
otherwise as permitted in the normal course of business, we may seek a sale of our business or certain of our
material assets pursuant to Section 363 of the Bankruptcy Code in conjunction with, or instead of, a plan of
reorganization, including the Plan. Any sales or disposals of assets and liquidations or settlements of liabilities m ay
be for amounts other than those reflected in our Consolidated Financial Statements. In connection with the C hapter
11 Cases, it is also possible that additional restructuring and related charges may be identified and recorded in future
periods. Such sales, disposals, liquidations, settlements or charges could be material to our consolid ated f in ancial
position and results of operations in any given period.
We may be subject to claims that will not be discharged in the Chapter 11 Cases, which co ul d ha ve a ma t eria l
adverse effect on our financial condition and results of operations.
The Bankruptcy Code provides that the confirmation of a plan of reorganizatio n d ischarges a d ebto r f rom,
among other things, substantially all debts arising prior to consummation of a plan o f reo rganizat io n. Wit h f ew
exceptions, all claims against the Debtors that arose prior to the commencement of the bankruptcy p ro ceedin gs o r
before consummation of the plan of reorganization (i) would be subject to compromise and/or treatmen t u n der t h e
plan of reorganization and/or (ii) would be discharged in accordance with the Bankruptcy Code and the terms of th e
plan of reorganization. Subject to the terms of the plan of reorganization and orders of the Bankrupt cy C ou rt, a ny
claims not ultimately discharged pursuant to the plan of reorganization could be asserted again st t he reo rganized
14
entities and may have a material adverse effect on our financial condition a nd resu lt s o f o p erat ion s o n a p ost -
reorganization basis.
Operating under Chapter 11 may restrict our ability to pursue our business strategies.
Under Chapter 11, transactions outside the ordinary course of business will be subject to the prior approval of
the Bankruptcy Court, which may limit our ability to respond in a timely manner to certain events or take advantage
of certain opportunities. We must obtain Bankruptcy Court approval to, among other things:
sell assets outside the ordinary course of business;
consolidate, merge, sell or otherwise dispose of all or substantially all of our a ssets;
•
•
• grant liens; and
•
finance our operations, investments or other capital needs or to engage in other b u sin ess a ct iv it ies t hat
would be in our interest.
The pursuit of the Chapter 11 Cases has consumed, and will continue to consume, a substantia l p o rti o n o f t he
time and attention of our corporate management and will impact how our business is conducted, which may have
a material adverse effect on our business and results of operations, and we may face increased levels of employee
attrition.
The requirements of the Chapter 11 Cases have consumed and will continue to consume a substantial portion of
our corporate management’s time and attention and leave them with less time to devote t o t h e o p erat ion s o f o u r
business. This diversion of corporate management’s attention may have a material adverse effect on the cond uct o f
our business, and, as a result, on our financial condition and results of operations, part icularly if t h e C hap ter 1 1
Cases are protracted.
During the pendency of the Chapter 11 Cases, our employees will face considerable distraction and uncertainty,
and we may experience increased levels of employee attrition. A loss of key personnel or material erosion of
employee morale could have a material adverse effect on our ability to effectively, efficiently and safely conduct our
business, and could impair our ability to execute our strategy and implement operational initiatives, thereby having a
material adverse effect on our business and on our financial condition and results of o p eratio ns . Th e lo ss o f t h e
services of any members of our senior management could impair our ability to execute our strategy and, as a result ,
could have a material adverse effect on our financial condition and results of operations.
Even if a Chapter 11 plan of reorganization is consummated, we may not be able to achieve our stated goals a nd
continue as a going concern.
Even if the Plan, or any other Chapter 11 plan of reorganization, is consummated, we may cont in ue t o f ace a
number of risks, such as further deterioration in oil prices or other changes in economic conditions, changes in o u r
industry, changes in demand for our services and increasing expenses. Accordingly, we cannot guarantee t hat t he
Plan, or any other Chapter 11 plan of reorganization, will achieve our stated goals.
Furthermore, even if our debts are reduced through the Plan, or any other Chapter 11 plan of reorganization, we
may need to raise additional funds through public or private debt or equity financing or other various means to fund
our business after the completion of the Chapter 11 Cases. Our access to additional financing may be limited, if it is
available at all. Therefore, adequate funds may not be available when needed or may not be available on fav orable
terms.
It is likely at this time that our common stock will be cancelled and that holders of such common st ock w i ll no t
receive any distribution with respect to, or be able to recover any portion of, their investments.
We have a significant amount of indebtedness that is senior to our commo n st o ck in o u r cap ital st ru ctu re.
Although the Plan contemplates no distributions with respect to our common st ock, t h e Pla n h as n ot y et b een
approved by the Bankruptcy Court. Accordingly, it is unclear at this stage of the Chapter 11 Cases if any
distributions will ultimately be made with respect to our common stock and other outstanding equity interest s. I t is
possible that these equity interests may be cancelled and extinguished upon the approval of the Bank rupt cy C ou rt
15
and the holders thereof would not be entitled to receive, and would not receive or retain, any property or int erest in
property on account of such equity interests. In the event of a cancellation of these equity interests, amounts invested
by such holders in our outstanding equity securities will not be recoverable. Consequently, our currently outstanding
common stock would have no value. Trading prices for our common stock are v ery volatile and may bear little or no
relationship to the actual recovery, if any, by the holders of such securities in the Chapter 11 Cases. Accordingly, we
urge that extreme caution be exercised with respect to existing and future investments in our equ ity securit ies a nd
any of our other securities.
The NYSE has delisted our common stock. Trading in our securities during the p endency o f t he C ha pt er 1 1
Cases is highly speculative and poses substantial risks.
The NYSE delisted our common stock because we a re no longer suitable for list in g p u rsu an t t o t h e NYSE
Listed Company Manual Section 802.01D as a result of the filing of the Chapter 11 Cases. Since April 28, 2020, our
common stock has been quoted on the OTC Pink Open Market under the symbol “DOFSQ.” We ca n p ro vide n o
assurance that our common stock will continue to trade on this market, whether broker -d ealers will co n t in u e t o
provide public quotes of our common stock on this market, whether the trading volume of our common stock will be
sufficient to provide for an efficient trading market, or whether quotes for our common stock will contin u e o n t h is
market in the future. These developments could result in significantly lower trading volumes and reduced liq u id it y
for investors seeking to buy or sell shares of our common stock.
Risks Related to Our Business and Operations
The impacts of the COVID-19 pandemic and efforts to mitigate the spread of the virus have had a material
adverse effect on and are expected to continue to have a material adverse effect on our business, operations a nd
financial results.
The COVID-19 outbreak and its development into a pandemic in March 2020 continue to significantly im pact
our business and the geographical areas in which we operate. These events continue to result in various actio ns b y
governmental authorities in many parts of the world to mitigate the spread of COVID-19, such as imposing
mandatory closures of all non-essential business facilities, seeking voluntary closures of business facilities, declaring
border closings, and imposing restrictions on, or advisories with respect to, travel, business operat io ns an d p ub lic
gatherings or interactions. Moreover, any resurgence in COVID-19 infections could result in the imposition o f n ew
governmental lockdowns, quarantine requirements or other restrictions in an effort to slow the spread of the virus. In
addition, the risk of infection and health risk associated with COVID-19, and the related death o r illn ess o f m any
individuals across the globe, continue to result in actions by individuals and companies seeking to curtail the spread
of COVID-19, such as companies requiring employees to work remotely, suspending all non -essent ial t rav el f o r
employees and discouraging employee attendance at in -person work-related meetings, as well as individuals
voluntarily social distancing and self-quarantining. Although vaccines for COVID-19 have been developed and a re
being distributed, the phased rollout by the Centers for Disease Control and Prev en tio n, o r C DC , a n d d elays in
distribution of the COVID-19 vaccine could result in new governmental lockdowns, quarant ine req uirements o r
other restrictions.
The COVID-19 pandemic and the actions taken by businesses and governments in response to it have
significantly slowed global economic activity as a result of, among other things, the dramatic decrease in the number
of businesses open for operation and a substantial reduction in the number of people across the world that have been
leaving their residence to commute to work or to purchase goods and services. This reduction has a lso resu lt ed in
airlines dramatically reducing flights. As a result, there has also been a sharp reduction in the demand for o il a n d a
precipitous decline in oil prices. In the first half of 2020, oil price volatility was exacerbated by disputes over
production levels among oil-producing countries, the significant increase in production levels by such countries a nd
limited storage capacity for crude oil and refined products. In addition, the global economy has been further
impacted by the COVID-19 pandemic through the disruption of financial markets and international trade, resu lt in g
in increased unemployment levels and significantly impacting global supply chains and travel networks.
These events have had a material adverse effect on and are expected to continue to h ave a material a dv erse
effect on our business. Any prolonged period of depressed oil prices could have significant adverse co nsequences
for the financial condition of our customers and result in reductions to their drilling and production expenditures and
16
delays or cancellations of projects, thus decreasing demand for our drilling services. We have already exp erien ced
customers delaying drilling projects as a result of COVID-19 restrictions and complications. Such condit io ns h ave
resulted in an increased risk that our customers may seek price reductions or more favorable economic terms for our
services, seek to terminate our drilling contracts or otherwise be unable to timely pay outstanding receivables o wed
to us, or could result in us having to enter into lower dayrate contracts or to idle, stack or retire more of
our drilling rigs. To the extent our suppliers experience a deterioration in financial condition or operational
capability as a result of such depressed industry conditions or we or other suppliers incur delays in moving
personnel to and from drilling rigs, we may experience disruptions in supply, which could increase o u r o p eratin g
costs and increase rig downtime. The occurrence of any such events with respect to o ur cu st omers, co nt ract s o r
suppliers could have material adverse consequences for our business and financial position.
As a result of the COVID-19 pandemic and impact, we have implemented certain changes to o u r o peratio nal
processes. For example, we have asked our rig crews in certain locations to quarantine in-country b efo re o ffshore
rotations, as well as to remain in country after their offshore rotation. We have also a dopt ed C OVID -1 9 t estin g
requirements based on the regions in which our rigs are operating that primarily require testing of all personnel prior
to an offshore rotation or travel from the U.S. to an international location. Additionally, for most of our rigs we have
implemented other health protocols once personnel are on board a rig such as increased social distancing, req uirin g
twice daily temperature checks and increased frequency in cleaning/disinfecting co mmon areas o n o ur rigs. We
cannot guarantee that any actions taken by us, including the precautionary measures noted above, will be effective in
preventing either an outbreak of COVID-19 on one or more of our rigs or other adverse effects related t o C OVI D-
19. Furthermore, we cannot predict when our personnel will be able to obtain a COVID-19 vaccine in a ccordance
with the CDC phased allocation guidelines. To the extent there is an outbreak of COVID-19 on one or more o f o u r
rigs, we may have to temporarily shut down operations of such rig or rigs, which could result in significant
downtime or contract termination and have substantial adverse con sequ ences f o r o u r b usin ess a nd result s o f
operations.
Many governmental authorities worldwide have implemented travel restrictions a nd man dat ory q uaran tin e
measures to prevent the spread of COVID-19, and, in complying with such governmental actions, we have
experienced, and expect to continue to experience, increased difficulties, delays and costs in moving our p ersonnel
in and out of, and to work in, the various jurisdictions in which we operate. Such difficulties and delays may resu lt
in a shortage of available experienced rig personnel or rig personnel working unusually long periods before rotatin g
off the rig. We may be unable to recover these increased costs from our customers. We may also experience
permitting and regulatory delays attributable to the COVID-19 pandemic or reduced staffing at various regu lat ory
agencies. Additionally, disruptions to or restrictions on the ability of our suppliers, m anufact urers a nd serv ice
providers to supply parts, equipment or services in the jurisdictions in which we operat e, wh et her as a resu lt o f
government actions, labor shortages, the inability to source parts or equipment from affected lo catio ns, o r o t h er
effects related to the COVID-19 outbreak, may have significant adverse consequences on our a bilit y t o m eet o u r
commitments to customers, including by increasing our operating costs and increasing the risk of rig downtime a nd
could result in contract delays or terminations.
In spite of the fact that COVID-19 vaccines are being distributed, the situation su rro undin g t h e C OVI D -19
pandemic remains fluid. Due to delays in the distribution of COVID-19 vaccin es a nd p o tent ial resu rgences in
COVID-19 infections, we cannot reasonably estimate the period of time that the COVID-19 pandemic an d rela ted
market conditions will persist, the extent of the impact they will have on our result s of operations, financial
condition and liquidity, or the pace or extent of any subsequent recovery. The ultimate extent of the im pact o f t he
COVID-19 outbreak on our business and financial position will continue to depend significantly on future
developments, including the speed of distribution and efficacy of the COVID-19 vaccine, the future duration, spread
or containment of the outbreak, particularly within the geographic locations wh ere we o p erate, an d t h e rela t ed
impact on overall economic activity and demand for oil and gas, all of which continue to remain highly uncertain a t
this time. The depressed market and industry conditions have placed significant pressure on the liquidity and
solvency of many offshore drilling contractors, which have led some of our competitors t o p u rsue rest ructurin g
transactions. We are unable to predict the timing or impact of any such restructurings, if completed, o n t h e capital
structure and competitive dynamics among offshore drilling companies.
Many of the other risks we face are, and will be, exacerbated by the COVID-19 pandemic and any worsening of
the business and economic environment as a result of it.
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The current protracted downturn in our industry may continue into the foreseeable future, and we cannot predict
if or when it will end.
Crude oil prices, which peaked at $115 per barrel in 2014, have declined to a f iv e-y ear av erage o f $ 5 5 p er
barrel. Oil prices continue to remain low with Brent crude oil prices in the $60-per-barrel range as of the date of this
report. As a result of, among other things, the depressed commodity price and its un certain f ut ure, t h e o f fshore
drilling industry has experienced, and is continuing to experience, a substantial decline in demand for its services, as
well as a significant decline in dayrates for contract drilling services. The decline in demand for our contract drillin g
services and the dayrates for those services has had, and if the industry downturn continues, will continue to have, a
material adverse effect on our financial condition, results of operations and cash flows, in clu d in g n egativ e cash
flows. The protracted downturn in our industry will exacerbate many of the other risks inclu d ed b elow a nd o th er
risks that we face, and we cannot predict if or when the downturn will end.
The worldwide demand for drilling services has historically been dependent on the price of oil and, as a resul t o f
low oil prices, demand continued to be depressed in 2020 as the protracted downturn in our industry continues.
Demand for our drilling services depends in large part upon the oil and natural gas industry’s offshore
exploration and production activity and expenditure levels, which are directly affected by o il a n d gas p rices a nd
market expectations of potential changes in oil and gas prices. Beginning in the seco nd h alf o f 2 01 4, o il p rices
declined significantly, resulting in a sharp decline in the demand for offshore drilling services, in clu d in g serv ices
that we provide, and have had a material adverse effect on our results of operations and cash f lo ws co mpared t o
years before the decline. The continuation of low oil prices would make more severe the downturn in o u r in d u stry
and would continue to have a material adverse effect on many of our customers and , t h erefore, d eman d f or o u r
services and our financial condition, results of operations and cash flows, including negative cash flows.
Oil prices have been, and are expected to continue to be, volatile and are affected by numerous factors b eyo nd
our control, including:
• worldwide supply and demand for oil and gas, including the oversupply of oil and ga s a s a resu lt o f t h e
COVID-19 pandemic;
the level of economic activity in energy-consuming markets;
the worldwide economic environment and economic trends, including recessions and the level of
international trade activity;
the ability of the Organization of Petroleum Exporting Countries, and 10 other oil p ro d u cin g co u ntries,
including Russia and Mexico, or OPEC+, to set and maintain production levels and pricing;
the level of production in non-OPEC+ countries, including U.S. domestic onshore oil production;
•
• civil unrest and the worldwide political and military environment, including uncertainty or instability
resulting from an escalation or additional outbreak of armed hostilities involving the Middle East, R ussia,
Myanmar, where the Ocean Monarch is operating as of the date of this report, other oil-producing regio n s
or other geographic areas or further acts of terrorism in the U.S. or elsewhere;
the cost of exploring for, developing, producing and delivering oil and gas, both onshore and offshore;
•
•
•
•
the discovery rate of new oil and gas reserves;
•
the rate of decline of existing and new oil and gas reserves and production;
•
• available pipeline and other oil and gas transportation and refining capacity;
•
• weather conditions, including hurricanes, which can affect oil and gas operations over a wide area;
the ability of oil and gas companies to raise capital;
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•
•
•
• natural disasters or incidents resulting from operating hazards inherent in o f fsho re d rillin g, su ch a s o il
spills;
the policies of various governments regarding exploration and development of their oil and gas reserves;
international sanctions on oil-producing countries, or the lifting of such sanctions;
technological advances affecting energy consumption, including development and exploitation of
alternative fuels or energy sources;
laws and regulations relating to environmental or energy security matters, including those addressing
alternative energy sources, the phase-out of fossil fuel vehicles or the risks of global climate change;
•
• domestic and foreign tax policy; and
• advances in exploration and development technology.
Although, historically, higher sustained commodity prices have generally resu lt ed in in creases in o f fshore
drilling projects, short-term or temporary increases in the price of oil and gas will not necessarily result in an
increase in offshore drilling activity or an increase in the market demand for our rigs. The timing of commitmen t t o
offshore activity in a cycle depends on project deployment times, reserve replacement needs, availability of ca pital
and alternative options for resource development, among other things. Timing can also be affected by availabilit y ,
access to, and cost of equipment to perform work.
Our business depends on the level of activity in the offshore oil and gas industry, w hi ch ha s b een cycli cal , i s
currently in a protracted downturn and is significantly affected by many factors outside of our control.
Demand for our drilling services depends upon the level of offshore oil and gas exploration, development an d
production in markets worldwide, and those activities depend in large part o n oil and gas prices, worldwide demand
for oil and gas and a variety of political and economic factors. The level of offshore drilling act iv it y is a d v ersely
affected when operators reduce or defer new investment in offshore projects, reduce or suspend their drilling
budgets or reallocate their drilling budgets away from offshore drilling in favor of other priorities, such as sh ale o r
other land-based projects, which have reduced, and may in the future further reduce demand for our rigs. As a result,
our business and the oil and gas industry in general are subject to cyclical fluctuations.
As a result of the cyclical fluctuations in the market, there have been perio ds o f lo wer d emand, ex cess rig
supply and lower dayrates, followed by periods of higher demand, shorter rig supply and higher dayrates. We cannot
predict the timing or duration of such fluctuations. Periods of lower demand or excess rig supply, such as the current
protracted downturn in our industry that is ongoing and may continue into the foresee able f ut ure, in t ensif y t h e
competition in the industry and often result in periods of lower utilization and lower dayrates. During these period s,
our rigs may not be able to obtain contracts for future work and may be idle for long periods of time or may b e ab le
to obtain work only under contracts with lower dayrates or less favorable terms. Additionally, prolonged perio ds o f
low utilization and dayrates (such as we are currently experiencing) have in the past resu lt ed in , a n d may in t h e
future result in, the recognition of further impairment charges on certain of our drilling rigs if future cash flow
estimates, based upon information available to management at the time, indicate that the carrying value of these rigs
may not be recoverable. See “- We may incur additional asset impairments and/or rig ret i rements a s a resu l t o f
reduced demand for certain offshore drilling rigs.”
Our industry is highly competitive, with an oversupply of drilling rigs and intense price competition.
The offshore contract drilling industry is highly competitive with numerous industry p art icipant s, an d su ch
competitiveness may be exacerbated by the current protracted downturn in our industry. Some of o u r co mpet it ors
are larger companies, have larger or more technologically advanced f leets a nd hav e grea ter f in ancial o r o t h er
resources than we do. The drilling industry has experienced consolidation and may experience additional
consolidation, which could create additional large competitors. Moreover, as a result o f t h e sign if icant red uc ed
demand for oil and natural gas services due to the global COVID-19 pandemic, certain o f o ur co mpetit ors m ay
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engage in bankruptcy proceedings, debt refinancing transactions, management changes or other strategic initia tiv es
in an attempt to reduce operating costs to maintain a position in the market. This could result in su ch co mpet it ors
emerging with stronger or healthier balance sheets and in turn an improved ability to compete with us in the future.
Drilling contracts are traditionally awarded on a competitive bid basis. Price is typically the primary f act or in
determining which qualified contractor is awarded a job; however, rig availability and location, a drilling
contractor’s safety record and the quality and technical capability of service and equipment are also considered.
As of the date of this report, based on industry data, there are approximately 210 floater rigs currently available
to meet customer drilling needs in the offshore contract drilling market, and many of these rigs a re n o t cu rren t ly
contracted and/or are cold stacked. Although there have been over 130 floater rigs scrapped since 2014, the market
remains oversupplied as new rig construction, upgrades of existing drilling rigs, cancelation or termination of
drilling contracts and established rigs coming off contract have contributed to the current oversupply, in t ensify ing
price competition. In addition, some shipyards own rigs recently constructed or under construction, wh ich are n o t
currently marketed, which, if acquired by us or our competitors, would further exacerbate the oversupply of rigs.
In addition, during industry downturns like the one we are currently experiencing, rig operators may take lower
dayrates and shorter contract durations to keep their rigs operational.
We can provide no assurance that our drilling contracts will not be terminated early or that our current b ackl og
of contract drilling revenue ultimately will be realized.
Our customers may terminate our drilling contracts under certain circumstances, such as the destruction or lo ss
of a drilling rig, our suspension of drilling operations for a specified period of time as a result o f a b reakd own o f
major equipment, excessive downtime for repairs, failure to meet minimum performance criteria (including
customer acceptance testing) or, in some cases, due to other events beyond the control of either party.
In addition, some of our drilling contracts permit the customer to terminate the contract after specif ied n o tice
periods, often by tendering contractually specified termination amounts, which may not fully compensate us for t h e
loss of the contract. In some cases, our drilling contracts may permit the customer to terminate the contract wit h o ut
cause, upon little or no notice or without making an early termination payment t o u s. Du rin g d ep ressed market
conditions, such as those currently in effect, certain customers have utilized, and may in t h e f u t ure u tilize, su ch
contract clauses to seek to renegotiate or terminate a drilling contract or claim that we have breached provisio ns o f
our drilling contracts in order to avoid their obligations to us under circumstances where we believe we are in
compliance with the contracts. Additionally, because of depressed commodity prices, rest rict ed credit m arkets,
economic downturns, changes in priorities or strategy or other factors beyond our control, a customer may no lo nger
want or need a rig that is currently under contract or may be able to obtain a comparable rig at a lower dayrat e. Fo r
these reasons, customers have sought and may in the future seek to renegotiate the terms o f o u r ex ist ing d rillin g
contracts, terminate our contracts without justification or repudiate or otherwise fail to perf orm t h eir o b liga tio ns
under our contracts. As a result of such contract renegotiations or terminations, our contract backlog h as b een an d
may in the future be adversely impacted. We might not recover any compensation (or any recovery we o b tain may
not fully compensate us for the loss of the contract) and we may be required to idle one or more rigs for an extended
period of time. Each of these results in some cases has had, and may in the future have, a material adverse effect o n
our financial condition, results of operations and cash flows. See “- Our industry is h i ghl y co mpeti ti ve, w i th a n
oversupply of drilling rigs and intense price competition”.
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We may not be able to renew or replace expiring contracts for our rigs.
As of the date of this report, one of our drilling rigs has contract backlog that provides for continuous work until
December 2021, seven of our drilling rigs have contract backlog that provides for continuous work until so m et ime
in 2022 and one of our drilling rigs has contract backlog that provides for continuous work until January 2024. On e
of our drilling rigs is not currently contracted for continuous utilization between contract s and is b ein g a ct ively
marketed for the uncontracted periods. Backlog for this rig extends until May 2023. Our ability to renew or rep lace
expiring contracts or obtain new contracts, and the terms of any such contracts, will d ep en d o n v ario us f act ors,
including market conditions and the specific needs of our customers, at such times. Given the historically cy clical
and highly competitive nature of our industry and the likelihood that the current protracted downturn in our industry
continues, we may not be able to renew or replace the contracts or we may be required to renew or replace expirin g
contracts or obtain new contracts at dayrates that are below existing dayrates, o r t h at h ave t erms t hat are less
favorable to us, including shorter durations, than our existing contracts. Moreover, we m ay b e u nable t o secure
contracts for these rigs. Failure to secure contracts for a rig may result in a decision to cold stack the rig, which p u t s
the rig at risk for impairment and may competitively disadvantage the rig as many customers, d u rin g t h e cu rren t
protracted market downturn, have expressed a preference for ready or warm-stacked rigs over cold-stacked rigs. If a
decision is made to cold stack a rig, our operating costs for the rig are typically reduced; h o wev er, we will in cu r
additional costs associated with cold stacking the rig (particularly if we cold stack a newer rig, such as a drillship o r
other DP semisubmersible rig, for which cold-stacking costs are typically substantially higher than for an older non-
DP rig). In addition, the costs to reactivate a cold-stacked rig may be substantial. See “- We must make su b st anti al
capital and operating expenditures to reactivate, build, maintain and upgrade our drilling fleet.”
Our customer base is concentrated.
We provide offshore drilling services to a customer base that includes m ajor a nd in d ep end ent o il a n d ga s
companies and government-owned oil companies. During 2020, our three cu st omers in t h e GOM a n d o u r f iv e
largest customers in the aggregate accounted for 46% and 83%, respectively, o f o u r a nnual t o tal co n solid ated
revenues. In addition, the number of customers we have performed services for has declined from 35 in 2014 to t en
in 2020. Of our current contracted backlog for the years 2021 and 2022, $0.3 billion and $0.2 billion, resp ect iv ely ,
or 46% and 62%, respectively, are attributable to future operations with two customers. Contracted backlog
aggregating $0.1 billion for the years 2023 and 2024 is attributable to future operations from a single customer. Th e
loss of a significant customer could have a material adverse impact on our financial condition, results of operat ion s
and cash flows, especially in a declining market (like the current protracted industry downturn) where the number of
our working drilling rigs is declining along with the number of our active customers. In addit io n, if a sign if ica nt
customer experiences liquidity constraints or other financial difficulties, or elects to terminate o ne o f o u r d rillin g
contracts, it could have a material adverse effect on our utilization rates in the affected mark et a nd a lso d isp lace
demand for our other drilling rigs as the resulting excess supply enters the market.
Our contract drilling expense includes fixed costs that will not decline in proportion to decreases in rig utilization
and dayrates.
Our contract drilling expense includes all direct and indirect costs associated with the operation, m ain tenan ce
and support of our drilling equipment, which is often not affected by changes in dayrates and u t iliza tio n. Du rin g
periods of reduced revenue and/or activity (like the current protracted industry downturn), certain of our fixed co sts
will not decline and often we may incur additional operating costs, such as fuel and catering co st s, f o r wh ich t h e
customer generally reimburses us when a rig is under contract. During times of reduced dayrates and utilization, like
the current protracted industry downturn, reductions in costs may not be immediate as we may incur additional costs
associated with cold stacking a rig (particularly if we cold stack a newer rig, such as a drillship or other DP
semisubmersible rig, for which cold-stacking costs are typically substantially higher than for an older non -DP rig),
or we may not be able to fully reduce the cost of our support operations in a particular geographic region due t o t h e
need to support the remaining drilling rigs in that region. Accordingly, a decline in revenue due to lo wer d a yrates
and/or utilization may not be offset by a corresponding decrease in contract drilling expense.
We must make substantial capital and operating expenditures to reactivate, build, ma int ain a nd up g ra de o ur
drilling fleet.
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Our business is highly capital intensive and dependent on having sufficient cash flow and/or available so urces
of financing in order to fund our capital expenditure requirements. Our expenditures could increase a s a resu lt o f
changes in offshore drilling technology; the cost of labor and materials; customer requirements; the cost of
replacement parts for existing drilling rigs; the geographic location of the rigs; and industry standards. C hanges in
offshore drilling technology, customer requirements for new or upgraded equipment and competit io n wit h in o ur
industry may require us to make significant capital expenditures in ord er t o main tain o ur co mpet itiv eness. I n
addition, changes in governmental regulations, safety or other equipment standards, including those relat in g t o t he
COVID-19 pandemic, as well as compliance with standards imposed by maritime self -regulatory organizations, may
require us to make additional unforeseen capital expenditures. As a result, we may be required to take our rigs out of
service for extended periods of time, with corresponding losses of revenues, in order to make such alteratio ns o r t o
add such equipment. Depending on the length of time that a rig has been cold-stacked, we m ay in cu r sign if icant
costs to restore the rig to drilling capability, which may also include capital expenditures due to the possible
technological obsolescence of the rig. Market conditions, such as the current protracted industry downturn, may n o t
justify these expenditures or enable us to operate our older rigs profitably during the remainder of t heir eco nomic
lives. We can provide no assurance that we will have access to adequate or economical sources of capital to fund our
capital and operating expenditures.
Our business involves numerous operating hazards that could expose us to significant losses and significant damage
claims. We are not fully insured against all of these risks and our contractual indemnity provisions ma y no t ful l y
protect us.
Our operations are subject to the significant hazards inherent in drilling for oil and gas offshore, such as blowouts,
reservoir damage, loss of production, loss of well control, unstable or faulty sea floor condit io ns, f ires an d nat ural
disasters such as hurricanes and the frequency and severity of such natural disasters could be increased due to climat e
change. The occurrence of any of these types of events could result in the suspension of drilling operations, damage t o
or destruction of the equipment involved and injury or death to rig personnel and damage to producing or p o tentially
productive oil and gas formations, oil spillage, oil leaks, well blowouts and extensive uncontrolled fires, any o f wh ich
could cause significant environmental damage. In addition, offshore drilling operations are subject to marine hazards,
including capsizing, grounding, collision and loss or damage from severe weather. Operations also may be su sp ended
because of machinery breakdowns, abnormal drilling conditions, failure of suppliers or subcontractors t o p erform o r
supply goods or services or personnel shortages. Any of the foregoing events could result in significant damage or lo ss
to our properties and assets or the properties and assets of others, injury or death to rig personnel or others, sign ifican t
loss of revenues and significant damage claims against us.
Our drilling contracts with our customers provide for varying levels of indemnity a nd allo catio n o f lia bilit ies
between our customers and us with respect to the hazards and risks inherent in, and damages or losses arisin g o ut o f,
our operations, and we may not be fully protected. Our contracts are in div idually n egot iated, a nd t h e lev els o f
indemnity and allocation of liabilities in them can vary from contract to contract dependin g o n market co ndit ions,
particular customer requirements and other factors existing at the time a contract is negotiated. We may incur lia bilit y
for significant losses or damages under such provisions.
Additionally, the enforceability of indemnification provisions in our contracts may be limited or prohib ited b y
applicable law or such provisions may not be enforced by courts having jurisdiction, and we could be held liable for
substantial losses or damages and for fines and penalties imposed by regulatory authorities. Th e in d emn ificatio n
provisions in our contracts may be subject to differing interpretations, and the laws or courts of certain jurisdictio ns
may enforce such provisions while other laws or courts may find them to be unenforceable. The law with respect t o
the enforceability of indemnities varies from jurisdiction to jurisdiction and is unsettled under certain laws t hat are
applicable to our contracts. There can be no assurance that our contracts with our customers, suppliers and
subcontractors will fully protect us against all hazards and risks inherent in our operations. Th ere can also b e n o
assurance that those parties with contractual obligations to indemnify us will be financially a ble t o d o so o r will
otherwise honor their contractual obligations.
We maintain liability insurance, which generally includes coverage for environmental damage; however,
because of contractual provisions and policy limits, our insurance coverage may not adequately cover our losses and
claim costs. In addition, certain risks and contingencies related to pollution, reservoir damage and en viro nme n tal
risks are generally not fully insurable. Also, we do not typically purchase loss-of-hire insurance to cover lost
22
revenues when a rig is unable to work. There can be no assurance that we will continue to carry t h e in su rance we
currently maintain, that our insurance will cover all types of losses or that we will be a b le t o m aintain a dequate
insurance in the future at rates we consider to be reasonable or that we will be able to obtain insurance against so me
risks. In addition, our insurance may not cover losses associated with pandemics such as the COVID-19 pandemic.
We are self-insured for physical damage to rigs and equipment caused by named windstorms in the GOM. Th is
results in a higher risk of material losses that are not covered by third party insurance contracts. In addition, certain
of our shore-based facilities are located in geographic regions that are susceptible to d amage o r d isru p tio n f ro m
hurricanes and other weather events. Future hurricanes or similar natural disasters that im pact o u r f acil it ies, o u r
personnel located at those facilities or our ongoing operations may negatively affect o ur f in ancial p o sit ion an d
operating results.
If an accident or other event occurs that exceeds our insurance coverage limits or is not an insurable event u nd er
our insurance policies, or is not fully covered by contractual indemnity, it could result in a significant lo ss t o u s a nd
could have a material adverse effect on our financial condition, results of operations and cash flows.
Any significant cyber-attack or other interruption in network security or the operation of cri t ical i nformat io n
technology systems could materially disrupt our operations and adversely affect our business.
Our business has become increasingly dependent upon information technologies, computer systems and
networks, including those maintained by us and those maintained and provided to us by third parties (for ex amp le,
“software-as-a-service” and cloud solutions), to conduct day-to-day operations, and we are placing greater relia nce
on information technology to help support our operations and increase efficiency in our business functions. We a re
dependent upon our information technology and infrastructure, includin g o p erat ional a nd f inan cial co mpu ter
systems, to process the data necessary to conduct almost all aspects of our business. Computer, telecommunicatio ns
and other business facilities and systems could become unavailable or impaired from a variety of causes in clu d ing,
among others, storms and other natural disasters, terrorist attacks, utility outages, theft, design defects, human erro r
or complications encountered as existing systems are maintained, repaired, rep laced o r u p graded. I t h as b een
reported that known or unknown entities or groups have mounted so-called “cyber-attacks” on businesses and ot her
organizations solely to disable or disrupt computer systems, disrupt operations and, in som e cases, st eal d a ta. I n
addition, the U.S. government has issued public warnings that indicate that energy assets might be specific targets of
cybersecurity threats. Cybersecurity risks and threats continue to grow and may be difficult to anticipate, p revent ,
discover or mitigate. A breach, failure or circumvention of our computer syst ems o r n et works, o r t h o se o f o u r
customers, vendors or others with whom we do business, including by ransomware or other attacks, could materially
disrupt our business operations and our customers’ operations and could result in the alteration, loss, theft or
corruption of data, and unauthorized release of, unauthorized access t o , o r o u r lo ss o f a ccess t o con fident ial,
proprietary, sensitive or other critical data or systems concerning our company, busin ess a ct ivit ies, em plo yees,
customers or vendors. In response to the COVID-19 pandemic, most of our non-operational employees, in clu din g
employees at our corporate headquarters, are working remotely, as of the date of this report, which increases various
logistical challenges, inefficiencies and operational risks. Working remotely has significantly increased t he u se o f
remote networking and online conferencing services that enable employees to work outside of our corporate
infrastructure and, in some cases, use their own personal devices. This “remote work” model has resulted in
increased demand for information technology resources and may expose us to risk of secu rit y b reaches o r o t her
cyber-incidents or attacks, loss of data, fraud and other disruptions as a consequence of more employees a ccessin g
sensitive and critical information from remote locations. Any such breach, failure or circumvention could resu lt in
loss of customers, financial losses, regulatory fines, substantial damage to property, bodily injury or loss o f lif e, o r
misuse or corruption of critical data and proprietary information and could have a material a dverse eff ect o n o ur
operations, business or reputation. Further, as cyber incidents continue to evolv e, we m a y b e req uired t o in cu r
additional costs to continue to modify or enhance our protective measures or to investigate or remediate the ef fect s
of cyber incidents.
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Acts of terrorism, piracy and political and social unrest could affect the markets for drilling services, which ma y
have a material adverse effect on our results of operations.
Acts of terrorism and social unrest, brought about by world political events or otherwise, have caused instability
in the world’s financial and insurance markets in the past and may occur in the future. Such acts could b e d irect ed
against companies such as ours. In addition, acts of terrorism, piracy and social u n rest co uld lead t o in creased
volatility in prices for crude oil and natural gas and could adversely affect the market for offshore drilling serv ices.
Insurance premiums could increase and coverage may be unavailable in the future. Government regu la tio ns may
effectively preclude us from engaging in business activities in certain countries. These regulations could be amended
to cover countries where we currently operate or where we may wish to operate in the future.
We rely on third-party suppliers, manufacturers and service providers to secure and service equipment,
components and parts used in rig operations, conversions, upgrades and construction.
Our reliance on third-party suppliers, manufacturers and service providers to provide equipment and serv ices
exposes us to volatility in the quality, price and availability of such items. Certain components, parts and equipment
that we use in our operations may be available only from a small number of suppliers, m anu factu rers o r serv ice
providers. The failure of one or more third-party suppliers, manufacturers or service providers to provide equipment,
components, parts or services, whether due to capacity constraints, production or delivery disruptions, price
increases, quality control issues, recalls or other decreased availability of parts and equipment, is beyond our control
and could materially disrupt our operations or result in the delay, renegotiation or cancellation of drilling cont ra ct s,
thereby causing a loss of contract drilling backlog and/or revenue to us, as well as an increase in operating costs and
an increased risk of additional asset impairments.
Additionally, our suppliers, manufacturers and service providers could be negatively impacted b y t h e cu rrent
protracted industry downturn, global economic conditions or COVID-19 pandemic. I f certain o f o u r su pp liers,
manufacturers or service providers were to experience significant cash flow issues, become insolvent or o t herwise
curtail or discontinue their business as a result of such conditions, it could result in a reductio n o r in t errup tio n in
supplies, equipment or services available to us and/or a significant increase in the price of such supplies, equipment
and services.
Contracts for our drilling rigs are generally fixed dayrate contracts, and increases in our operating co sts co uld
adversely affect our profitability on those contracts.
Our contracts for our drilling rigs generally provide for the payment of an agreed dayrate per rig operating da y ,
although some contracts do provide for a limited escalation in dayrate due to increased operating costs we in cu r o n
the project. Over the term of a drilling contract, our operating costs may fluctuate due to events beyond our cont rol.
In addition, equipment repair and maintenance expenses vary depending on the type of activity the rig is performing,
the age and condition of the equipment and general market factors im pactin g relev ant p arts, co mpon ent s an d
services. The gross margin that we realize on these fixed dayrate contracts will fluctuate based on variation s in o u r
operating costs over the terms of the contracts. In addition, for contracts with dayrate escalation clauses, we may not
be able to fully recover increased or unforeseen costs from our customers.
Failure to obtain and retain highly skilled personnel could hurt our operations.
We require highly skilled personnel to operate and provide technical services and support for ou r b u siness. A
well-trained, motivated and adequately-staffed work force has a positive impact on our ability to attract a nd ret ain
business. As a result, our future success depends on our continuing ability to identify, hire, develop, m ot ivat e a nd
retain skilled personnel for all areas of our organization. To the extent that d emand for drilling services a n d /or t h e
size of the active worldwide industry fleet increases, shortages of qualified personnel could arise, creat ing u p ward
pressure on wages and difficulty in staffing and servicing our rigs. Our continued abilit y t o co mpet e ef fectiv ely
depends on our ability to attract new employees and to retain and motivate our exist in g em plo yees. H eigh tened
competition for skilled personnel could materially and adversely limit our operations and further increase our co st s.
In addition, the unexpected loss of members of management, qualified personnel or a significant number of
employees due to disease, including COVID-19, disability or death, could have a material adverse effect on us.
24
Financial and Tax Risks
We may incur additional asset impairments and/or rig retirements as a result of red uced d emand fo r cert ai n
offshore drilling rigs.
The current oversupply of drilling rigs in the offshore drilling market has resulted in numerous rigs being id led
and, in some cases, retired and/or scrapped. We evaluate our property and equipmen t f o r im pairment wh enev er
changes in circumstances indicate that the carrying amount of an asset may not be recoverable, and we have incurred
impairment charges in the past, and may incur additional impairment charges in the future relat ed t o t he carry ing
value of our drilling rigs. Impairment write-offs could result if, for example, any of our rigs b eco me o bsolet e o r
commercially less desirable due to changes in technology, market demand or market expectations or their ca rry ing
values become excessive due to the condition of the rig, cold stacking the rig, the expectation of cold st ackin g t h e
rig in the near future, contracted backlog of less than one year for a rig, a decision to retire or scrap the rig, or
spending in excess of budget on a newbuild, construction project, reactivation or major rig upgrade. We u t ilize a n
undiscounted probability-weighted cash flow analysis in testing an asset for potential impairment, reflecting
management’s assumptions and estimates regarding the appropriate risk-adjusted dayrate b y rig, f u t u re in d ustry
conditions and operations and other factors. Asset impairment evaluations are, by their nature, h igh ly su b ject ive.
The use of different estimates and assumptions could result in materially different carryin g v alu es o f o ur a sset s,
which could impact the need to record an impairment charge and the amount of any charge taken. From 2012 to t he
date of this report, we have retired and sold 36 drilling rigs and recorded impairment losses aggregating $2.6 billion.
Historically, the longer a drilling rig remains cold stacked, the higher the cost of reactivation and, depending on t h e
age, technological obsolescence and condition of the rig, the lower the likelihood that the rig will be reactiva ted at a
future date. The current oversupply of rigs in our industry, together with the current protracted downturn, heigh t ens
the risk of future rig impairments. See “Management’s Discussion and Analysis of Financial Condition and Result s
of Operations - Critical Accounting Estimates - Property, Plant and Equipment” in Item 7 of this report and No te 4
“Asset Impairments” to our Consolidated Financial Statements in Item 8 of this report.
We can provide no assurance that our assumptions and estimates used in our asset impairment evaluatio ns will
ultimately be realized or that the current carrying value of our property and equipment will ultimately be realized.
Changes in tax laws and policies, effective income tax rates or adverse outcomes resulting from exam inat ion o f
our tax returns could adversely affect our financial results.
Tax laws and regulations are highly complex and subject to interpretation and disputes. We conduct our
worldwide operations through various subsidiaries in a number of countries throu ghout the world. As a resu lt , we
are subject to highly complex tax laws, regulations and income tax treaties within a nd b etween t h e co un tries in
which we operate as well as countries in which we may be resident, which may change and are subject to
interpretation. In addition, in several of the international locations in which we operate, certain of our wholly -owned
subsidiaries enter into agreements with each other to provide specialized services and equipment in sup p ort o f o u r
foreign operations. In such cases, we apply an intercompany transfer pricing methodology to determine t h e a rm’s
length amount to be charged for providing the services and equipment. In most cases, there are alternativ e t ransfer
pricing methodologies that could be applied to these transactions and, if applied, could result in different chargeable
amounts.
As a result, we determine our income tax expense based on our interpretation of the applicab le t ax la ws a nd
regulations in effect in each jurisdiction for the period during which we o perate and earn income. Our overall
effective tax rate could be adversely affected by lower than anticipated earnings in countries where we h a ve lo wer
statutory rates and higher than anticipated earnings in countries where we have higher statutory rates, b y changes in
the valuation of our deferred tax assets and liabilities or by changes in tax laws, tax treaties, regulations, account in g
principles or interpretations thereof in one or more countries in which we operate. In ad dit io n, chan ges in la ws,
treaties and regulations and the interpretation of such laws, treaties and regulations may put us at risk for futu re t ax
assessments and liabilities which could be substantial.
Our income tax returns are subject to review and examination. We recognize the benefit of income tax positions
we believe are more likely than not to be sustained on their merit should they be challenged by a tax authority. If any
tax authority successfully challenges any tax position taken or any of our intercompany transfer pricing policies, o r
25
if the terms of certain income tax treaties are interpreted in a manner that is adverse to us or our operations, or if we
lose a material tax dispute in any country, our effective tax rate on our worldwide earnings could increase
substantially.
Our consolidated effective income tax rate may vary substantially from one reporting period to another.
Our consolidated effective income tax rate is impacted by the mix between our domestic and international p re -
tax earnings or losses, as well as the mix of the international tax jurisdictions in wh ich we o p erate. We ca nnot
provide any assurance as to what our consolidated effective income tax rate will be in the future due to , among other
factors, uncertainty regarding the nature and extent of our business activities in any particular j u risd ictio n in t h e
future and the tax laws of such jurisdictions, as well as potential changes in U.S. and foreign tax laws, regulations or
treaties or the interpretation or enforcement thereof, changes in the administrative practices and preced ent s o f t ax
authorities or any reclassification or other matter (such as changes in applicable accounting rules) that increases t he
amounts we have provided for income taxes or deferred tax assets and liabilit ies in o u r co n solid at ed f inancial
statements. This variability may cause our consolidated effective income tax rate to vary su bstant ially f rom o n e
reporting period to another.
Changes in accounting principles and financial reporting requirements could adversel y a ffect o ur resul ts o f
operations or financial condition.
We are required to prepare our financial statements in accordance with accounting principles generally accepted
in the U.S., or GAAP, as promulgated by the Financial Accounting Standards Board. It is possible that future
accounting standards that we are required to adopt could change the current accounting treatment that we a p ply t o
our consolidated financial statements and that such changes could have a material adverse effect on o u r resu lt s o f
operations and financial condition.
Regulatory and Legal Risks
We are subject to extensive domestic and international laws and regulations that could si g nifi ca ntl y l i mit o ur
business activities and revenues and increase our costs.
Certain countries are subject to restrictions, sanctions and embargoes imposed by the U.S. government or ot h er
governmental or international authorities. These restrictions, sanctions and embargoes may prohibit or limit us f ro m
participating in certain business activities in those countries. Our operations are also subject to numerous local, state
and federal laws and regulations in the U.S. and in foreign jurisdictions concerning the containment and disposal o f
hazardous materials, the remediation of contaminated properties and the protection of the environment . Laws a nd
regulations protecting the environment have become increasingly stringent, and may in some cases im pose “st rict
liability,” rendering a person liable for environmental damage without regard to negligence or fault o n t h e p art o f
that person. Failure to comply with such laws and regulations could subject us to civ il o r crim in a l en f orcement
action, for which we may not receive contractual indemnification or have insurance coverage, and could result in the
issuance of injunctions restricting some or all of our activities in the affected areas. We may b e req u ired t o make
significant expenditures for additional capital equipment or inspections and recertifications th ereof to comply wit h
existing or new governmental laws and regulations. It is also possible that these laws and regu latio ns may in t h e
future add significantly to our operating costs or result in a substantial reduction in revenues associated with
downtime required to install such equipment or may otherwise significantly limit drilling activity.
In addition, these laws and regulations require us to perform certain regulatory inspections, which we refer to as
a special survey. For most of our rigs, these special surveys are due every five years, although the inspection interval
for our North Sea rigs is two-and-one-half years. Our operating income is negatively impacted during these sp ecial
surveys. These special surveys are generally performed in a shipyard and require scheduled downtim e, wh ich can
negatively impact operating revenue. Operating expenses increase as a result of these special surveys due to the cost
to mobilize the rigs to a shipyard, and inspection, repair and maintenance costs. Repair and maintenance a ctiv it ies
may result from the special survey or may have been previously planned t o t ake p lace d u rin g t h is man dat ory
downtime. The number of rigs undergoing a special survey will vary from year to year, as well as f ro m q uart er t o
quarter. Operating income may also be negatively impacted by intermediate surveys, which are performed at interim
26
periods between special surveys. Although an intermediate survey normally does not req uire sh ip yard t im e, t h e
survey may require some downtime for the rig. We can provide no assurance as to the exact timing and/or du rat io n
of downtime and/or the costs or lost revenues associated with regulatory inspections, planned rig mobilizations a nd
other shipyard projects.
In addition, the offshore drilling industry is dependent on demand for services from the oil and gas exploratio n
industry and, accordingly, can be affected by changes in tax and other laws relating to the energy business generally.
In early 2021, the newly-elected U.S. President and administration took actions to temporarily suspend the issuance
of new oil and gas permits on federal lands and waters in the U.S. for 60 days and signed an executive order
directing a pause in new oil and gas leasing on public lands and offshore waters, concurrent with a compr ehensive
review of the federal oil and gas program. A timeline for the review period has not been specified. We are unable t o
predict the direct impact of these measures, but such measures could materially adversely impact domestic d rillin g
activities should they be prolonged. In addition, the energy sector could b e n egativ ely im pacted b y a ddit io nal
executive orders and suspensions, as the administration focuses on the impact of climate change, ta rgetin g a f ully
clean energy economy and net-zero emissions by 2050.
Governments in some countries are increasingly active in regulating and controlling the ownership of
concessions, the exploration for oil and gas and other aspects of the oil a n d ga s in d ustry . Th e mo dificatio n o f
existing laws or regulations or the adoption of new laws or regulations curtailing ex p lo rato ry o r d ev elo pmental
drilling for oil and gas for economic, environmental or other reasons could limit drilling opportunities.
U.S. federal, state, foreign and international laws and regulations address oil spill prevention a nd co nt rol a n d
impose a variety of obligations on us related to the prevention of oil spills and liability for damages resu lt ing f ro m
such spills. Some of these laws and regulations have significantly expanded liability exposure a cross all segments of
the oil and gas industry. For example, the United States Oil Pollution Act of 1990 imposes strict and, wit h lim it ed
exceptions, joint and several liability upon each responsible party for oil removal costs and a variety of p ub lic a nd
private damages. Failure to comply with such laws and regulations could subject us to civil or criminal enforcement
action, for which we may not receive contractual indemnification or have insurance coverage, and could result in the
issuance of injunctions restricting some or all of our activities in the affected areas. I n ad dit io n, legisla t iv e and
regulatory developments may occur that could substantially increase our exposure to liabilities that m igh t a rise in
connection with our operations.
Any future regulations relating to greenhouse gases and climate change could have a neg a ti ve i mpa ct o n o ur
business.
Governments around the world are increasingly considering and adopting la ws a nd regu la tio ns t o ad dress
climate change issues. Lawmakers and regulators in the U.S. and other jurisdictions where we operate have focused
increasingly on restricting the emission of carbon dioxide, methane and other “greenhouse” gases. This may result in
new environmental regulations that may unfavorably impact us, our suppliers and our customers. Moreover, there is
increased focus, including by governmental and non-governmental organizations, investors and other stakehold ers
on these and other sustainability matters. In addition, efforts have b een mad e a nd con tin ue t o b e m ade i n t h e
international community toward the adoption of international treaties or protocols that would address global climate
change issues and impose reductions of hydrocarbon-based fuels. We may be exposed to risks related to new la ws,
regulations, treaties or international agreements pertaining to climate change, greenhouse gases, carbon emissions or
energy use that could decrease the use of oil or natural gas, thus reducing demand for hydrocarbon -based f u el a n d
our drilling services. Governments may also pass laws or regulations incentivizing or mandating the use of
alternative energy sources, such as wind power and solar energy, or the phase-out of fossil fuel vehicles, which may
reduce demand for oil and natural gas and our drilling services. Such laws, regulations, t reat ies o r in t ernatio nal
agreements could result in increased compliance costs or additional operating restrictions, or adversely a ffect t he
demand for hydrocarbons, which may have a negative impact on our business, and could have a m aterial a dv erse
effect on our operations by limiting drilling opportunities.
If we, or our customers, are unable to acquire or renew permits and approvals required for drilling o p era ti ons,
we may be forced to delay, suspend or cease our operations.
27
Oil and natural gas exploration and production operations require numerous permits and approvals f or u s a n d
our customers from governmental agencies in the areas in which we operate or expect to operate. Depending on t h e
area of operation, the burden of obtaining such permits and approvals to commence such operations may reside with
us, our customers or both. Obtaining all necessary permits and approvals may necessitate substantial expenditures to
comply with the requirements of these permits and approvals, future changes to these permits or approvals, o r a n y
adverse change in the interpretation of existing permits and approvals. In addition, such regulatory requirements and
restrictions could also delay or curtail our operations.
Significant portions of our operations are conducted outside the U.S. and involve additional risks not associ at ed
with U.S. domestic operations.
Our operations outside the U.S. accounted for approximately 54%, 47% and 41% o f o ur t o tal co n solid ated
revenues for 2020, 2019 and 2018, respectively, and include, or have in clu ded, o p erat ion s in So u th Am erica,
Australia and Southeast Asia, Europe and Mexico. Because we operate in various regions throughout the world , we
are exposed to a variety of risks inherent in international operations, including risks of war or conflicts; political and
economic instability and disruption; civil disturbance; acts of piracy, terrorism or o t h er a ssault s o n p ro perty o r
personnel; corruption; possible economic and legal sanctions (such as possible restrictions against count ries that t he
U.S. government may consider to be state sponsors of terrorism); changes in global monetary a nd t rad e p o licies,
laws and regulations; fluctuations in currency exchange rates; restrictions on currency exchange; controls o v er t h e
repatriation of income or capital; and other risks. We may not have insurance coverage for these risk s, o r we m a y
not be able to obtain adequate insurance coverage for such events at reasonable rates. Our operations may b ecome
restricted, disrupted or prohibited in any country in which any of these risks occur.
On February 1, 2021, Myanmar’s military seized control of the government and reportedly placed the country’s
civilian leader under house arrest. Although the United Nations Security Council has declined to issue a st at ement
condemning the coup, the U.S. State Department has concluded that the military takeover in Myanmar constituted a
coup d’état. The Ocean Monarch commenced drilling operations offshore M yanmar in Decem ber 2 02 0 a nd is
located there as of the date of this report. While we continue to monitor the political environment in Myanmar, t h e
situation there is fluid and the potential impact of the military takeover on our business, including the Ocean
Monarch, remains uncertain as of the date of this report. Any loss of property or interruption of our busin ess p la ns
resulting from political instability, civil unrest or changes in law or policy enacted by the military government could
have a significant negative impact on our business operations, earnings and cash flow. In addition, we may not have
sufficient insurance to cover any loss of property or other claims resulting from these risks.
On January 29, 2020, the European Parliament approved the U.K.’s withdrawal f ro m t h e Eu ropean Un io n,
commonly referred to as Brexit. The U.K. officially left the European Union on January 3 1 , 2 0 20. I n December
2020, the U.K. and the European Union announced they had entered into a post-Brexit agreement regarding cert ain
aspects of trade and other strategic and political issues, potentially avoiding some of the anticipated disruptio n o f a
no-deal Brexit. The impact of Brexit, the December 2020 post-Brexit agreement between the U.K. and the European
Union, and the terms of their post-Brexit relationship not addressed in that agreement, as well as the future
relationship between the U.K. and the European Union, remain uncertain for companies that do business in the U.K .
and the overall global economy. Approximately 16% of our total revenues for the year ended December 3 1 , 2 02 0
were generated in the U.K. The effects of Brexit and the December 2020 post-Brexit agreement bet ween t h e U.K.
and the European Union, or similar events in other jurisdictions, could depress economic activity or im p act glo b al
markets, including foreign exchange and securities markets, which may have an adverse impact on our business and
operations as a result of changes in currency exchange rates, tariffs, treaties and other regulatory matters.
We are also subject to the following risks in connection with our international operations:
• kidnapping of personnel;
•
seizure, expropriation, nationalization, deprivation, malicious damage or other loss of possession or u se o f
property or equipment;
renegotiation or nullification of existing contracts;
•
28
• disputes and legal proceedings in international jurisdictions;
• changing social, political and economic conditions;
•
• difficulties in collecting accounts receivable and longer collection periods;
•
fluctuations in currency exchange rates and restrictions on currency exchange;
imposition of wage and price controls, trade barriers, export controls or import-export quotas;
regulatory or financial requirements to comply with foreign bureaucratic actions;
restriction or disruption of business activities;
limitation of our access to markets for periods of time;
•
•
•
travel limitations or operational problems caused by public health threats, including the COVID-19
pandemic, or changes in immigration policies;
•
• difficulties in supplying, repairing or replacing equipment or transporting personnel in remote locations;
• difficulties in obtaining visas or work permits for our employees on a timely basis; and
• changing taxation policies and confiscatory or discriminatory taxation.
We are also subject to the regulations of the U.S. Treasury Department’s Office of Foreign Assets Contro l a nd
other U.S. laws and regulations governing our international operations in addition to domestic and international anti-
bribery laws and sanctions, trade laws and regulations, customs laws and regulations, and other restrictions imposed
by other governmental or international authorities. Failure to comply with these laws and regulations could result in
criminal and civil penalties, economic sanctions, seizure of shipments and/or the contractual withholding of mon ies
owed to us, among other things. We have operated and may in the future operate in parts of the world wh ere st rict
compliance with anti-corruption and anti-bribery laws may conflict with local customs and practices. Any failure t o
comply with the U.S. Foreign Corrupt Practices Act, the U.K. Bribery Act 2010 or other anti-corruption laws due t o
our own acts or omissions or the acts or omissions of others, including our partners, agents or vendors, could subject
us to substantial fines, sanctions, civil and/or criminal penalties and curtailment of operations in certain jurisdictions.
In addition, international contract drilling operations are subject to various laws and regu la tio ns in co u nt ries in
which we operate, including laws and regulations relating to the equipping and operation of drillin g rigs; im p o rt -
export quotas or other trade barriers; repatriation of foreign ea rnings or capital; oil and gas exploration and
development; local content requirements; taxation of offshore earnings and earnings of expatriate personnel; and use
and compensation of local employees and suppliers by foreign contractors.
29
We may be subject to litigation and disputes that could have a material adverse effect on us.
We are, from time to time, involved in litigation and disputes. These matters may include, among other t h ings,
contract disputes, personal injury claims, environmental claims or proceedings, asbestos and other toxic tort claims,
employment and tax matters, claims of infringement of patent and other intellect ual p ro p erty righ t s, a nd o t her
litigation that arises in the ordinary course of our business. We cannot predict with certainty the outcome or effect of
any dispute, claim or other litigation matter, and there can be no assurance a s t o t he u lt imate o u tcome o f an y
litigation. We may not have insurance for litigation or claims that may arise, or if we do have insurance covera ge it
may not be sufficient, insurers may not remain solvent, other claims may exhaust so me o r a ll o f t h e in su ran ce
available to us or insurers may interpret our insurance policies such that they do not cover losses for which we make
claims or may otherwise dispute claims made. Litigation may have a material a dv erse ef fect o n u s b ecause o f
potential adverse outcomes, defense costs, the diversion of our management’s reso urces and o th er risk f a ctors
inherent in litigation or relating to the claims that may arise.
Item 1B. Unresolved Staff Comments.
Not applicable.
Item 2. Properties.
We lease office space in Houston, Texas, where our corporate headquarters are located. Additionally, we lea se
various office, warehouse and storage facilities in Australia, Brazil, Louisiana, Malaysia, Singapore and the U.K. t o
support our offshore drilling operations. We own offices and other facilities in New Iberia, Lou isiana, Ab erd een,
Scotland, Macae, Brazil and Ciudad del Carmen, Mexico.
Item 3. Legal Proceedings.
See information with respect to legal proceedings in Note 11 “Commitments and Contingencies” to our
Consolidated Financial Statements in Item 8 of this report. In addition, information related to the Chapter 11 C ases
that we filed in the Bankruptcy Court on April 26, 2020 is included in Note 2 “Chapter 11 Proceedings – Chapter 11
Cases” to our Consolidated Financial Statements in Item 8 of this report.
Item 4. Mine Safety Disclosures.
Not applicable.
30
PART II
Item 5. Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases o f
Equity Securities.
Market Information and Holders of Record
Since April 28, 2020, our common stock has been quoted on the OTC Pink Open Mark et u nd er t h e sy mbol
“DOFSQ.” Any over-the-counter market quotations reflect inter-dealer prices, without retail mark-up, mark-down or
commission and may not necessarily represent actual transactions.
As of February 4, 2021, there were approximately 113 holders of record of our common st o ck. Th is n u mber
represents registered stockholders and does not include stockholders who hold their shares through an institution.
Dividend Policy
We have not paid a dividend to stockholders since 2015. Any future dividends will be at the discretio n o f o u r
Board after taking into account various factors it deems relevant, including our financial position, earnings, earnings
outlook, capital spending plans, outlook on current and future market conditions and business needs and contractual
obligations. The Board’s dividend policy may change from time to time, but there can be no assurance th at we will
declare any cash dividends at all or in any particular amounts. Our ability to declare dividends is generally
prohibited by our bankruptcy filing.
Cumulative Total Stockholder Return
The following graph shows the cumulative total stockholder return for our co mmon st o ck, t h e St an dard &
Poor's SmallCap 600 Index and the Dow Jones U.S. Oil Equipment & Services ind ex o v er t h e f iv e-y ear p erio d
ended December 31, 2020.
Comparison of Five-Year Cumulative Total Return (1)
$250
$200
$150
$100
$50
$0
2015
2016
2017
2018
2019
2020
Dia mond Offshore
S&P Sma llCap 600
Dow Jones U.S. Oil E quipme nt & Service s
31
$
Diamond Offshore
S&P SmallCap 600 Index
$
Dow Jones U.S. Oil Equipment & Services $
100
100
100
84
126
127
88
143
106
45
131
61
34
161
66
1
179
40
Dec. 31,
2015
Dec. 31,
2016
Dec. 31,
2017
Dec. 31,
2018
Dec. 31,
2019
Dec. 31,
2020
(1) Assumes $100 invested on December 31, 2015 in our common stock and the two published indices.
Item 6. Selected Financial Data.
Not applicable.
32
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion should be read in conjunction with Item 1A, “Risk Factors” a nd o ur C o nsolid at ed
Financial Statements (including the Notes thereto) in Item 8 of this report.
This section of this Form 10-K generally discusses 2020 and 2019 items and year-to-year comparisons b et ween
2020 and 2019. For a discussion of our financial condition and results of operations for 2 01 9 co mpared t o 2 0 18,
please refer to Item 7 of Part II, “Management’s Discussion and Analysis of Financial C o n dit io n a nd R esult s o f
Operations” in our Annual Report on Form 10-K/A for the year ended December 31, 2019 filed wit h t h e SEC o n
February 18, 2020.
We provide contract drilling services to the energy industry around the globe with a fleet of 13 offshore drillin g
rigs, consisting of four drillships and nine semisubmersible rigs, including two semisubmersible rigs t h a t a re co ld
stacked as of the date of this report. Our current fleet excludes the Ocean America and Ocean Rover, which we a re
actively marketing for sale. See “– Results of Operations – Impairment of Assets” and Note 4 “Asset Impairment s”
to our Consolidated Financial Statements in Item 8 of this report.
Recent Developments
Since the commencement of the Chapter 11 Cases, we ha ve continued to operate our business as a “debto r-in -
possession” under the jurisdiction of the Bankruptcy Court and in accordance with the applicable provisions o f t he
Bankruptcy Code and orders of the Bankruptcy Court. Additionally, as a d ebt or-in -po ssession , certain o f o ur
activities are subject to review and approval by the Bankruptcy Court, including, among other things, the incurrence
of secured indebtedness, material asset dispositions, and other transactions outside th e ordinary course of bu siness.
There can be no guarantee that the Chapter 11 Cases will be completed successfully or in the time frame
contemplated by the PSA. The Consenting Stakeholders and we made certain customary commitments to each other,
including the Consenting Stakeholders committing to vote to approve the Plan.
Through the financial restructuring contemplated in the PSA and the Plan, we, the Debtors, expect t o emerge
from the Chapter 11 cases with a capital structure that we expect will position the Debtors for future success in t h e
offshore drilling industry.
The risks and uncertainties surrounding the Chapter 11 Cases, the defaults under our Debt Instruments, and t h e
weak industry conditions impacting our business raise substantial doubt as to our abilit y t o co nt inu e a s a go in g
concern. The accompanying Consolidated Financial Statements have been prepared in accordance with U.S. GAAP,
which contemplate our continuation as a going concern.
For additional information concerning our Chapter 11 Cases, see “– Liquidity and Capital Reso urces,” “R isk
Factors – Risks Related to Our Chapter 11 Cases –” in Item 1A of this report and Note 2 “Chapter 11 Proceedings”
and Note 18 “Subsequent Event” to our Consolidated Financial Statements included in Item 8 of this report.
Market Overview
The offshore contract drilling market continues to be severely challenged by an oversupply of rigs and
continued depressed commodity prices, leading to a continuation of the prolonged industry downturn, a reduction in
the number of drilling projects being sanctioned and increased competition.
The global COVID-19 outbreak and resulting measures to mitigate the spread of the virus, including
government-imposed lockdowns, restrictions and travel bans, contributed to a dramatic fall in demand for oil durin g
2020. The modest success of COVID-19 restrictions and mitigation protocols in slowing the spread of the virus a nd
the recent development and ongoing distribution of vaccines to combat COVID-19 have resulted in t h e easin g o f
lockdowns and restrictions in some areas, as well as a gradual increase in demand for oil. However, the increase in
demand has been tempered by struggling economies in parts of the globe remaining in various stages o f lo ckd own
due to a resurgence in COVID-19 cases.
Commodity prices have risen modestly since the start of the second quarter of 2020, primarily due to an
agreement reached by the Organization of Petroleum Exporting Countries and other oil pro d u cin g n at io ns o n o il
33
production quotas. The production cuts agreed to in April 2020 were subject to a tapering p la n t hat in creased o il
production at points during the remainder of 2020 and into 2021. As of the date of this report, t h e p rice f or B ren t
crude oil had risen to the $60-per-barrel range, buoyed by optimism resulting from the rollout of COVID-19
vaccines and a January 2021 agreement by Saudi Arabia to reduce oil production to partially offset an in crease in
Russian production. Despite the modest recovery in commodity price since the first quarter of 2020, some a nalyst s
expect downward pressure on oil prices to persist in 2021 due to continuing concerns related to COVID-19 a nd t he
uncertain longevity of oil production quotas. Some industry analysts also predict that oil demand reco very /gro wth
will be slowed by increasing fuel efficiency standards and decarbonization efforts. As a result, depressed commodity
prices could continue for the foreseeable future.
As a result of low commodity prices and uncertain global demand, many exploration and production companies,
including some of our customers, made significant reductions in their capital spending programs in 2020, resu lt in g
in the early release of some offshore rigs from drilling programs or termination of contracts. Other drilling programs
were paused or put on hold in response to the need for COVID-19 containment. Some industry analysts predict t hat
capital spending programs in 2021 will remain flat or perhaps decline compared t o 2 0 20. Giv en t h e con tin ued
uncertainty around COVID-19 and other macroeconomic factors, many customers have elected to defer prev iou sly
sanctioned offshore drilling projects, which negatively impacts utilization.
At the end of 2020, based on industry reports, global floater contracted utilization was approximately 60%, with
126 of 212 available rigs contracted. In addition, industry analysts report that 26 floater rigs remain on o rd er, wit h
no floater deliveries having occurred in 2020. Only two of the twelve rigs on order scheduled for deliv ery in 2 0 2 1
have been contracted for future work. The remaining rigs on order, none of which are contracted for future work, are
scheduled for delivery in 2022 and 2023. Industry analysts also estimate that available rig supply will in crea se in
2021 as more than 50 of the currently contracted floaters will complete t h eir co n t racts d u rin g t h e y ear a nd b e
available, increasing competition. To manage supply and reduce expenses in an oversupplied and highly competitive
market, drilling contractors retired 24 floaters during 2020 based on industry data. Additionally, durin g p erio ds o f
rig oversupply, it is not uncommon for a drilling contractor to elect to forego u p comin g sp ecial su rv eys o f rigs
rolling off contract with no future work, resulting in the cold stacking or ultimate retirement of a rig. H ist o rica lly ,
the longer a drilling rig remains cold stacked, the cost of reactivation increases and the likelih o od o f rea ct ivatio n
decreases.
During 2020, we recognized asset impairments aggregating $842.0 million to write down four semisubmersible
rigs to their estimated fair values. If market fundamentals in the offshore oil and gas industry continue to deteriorate
or a market recovery is further delayed, we may be required to recognize additional impairment charges in f u t ure
periods. As of the date of this report, we have two cold-stacked semisubmersible rigs, one of wh ich h a s n ot b een
previously impaired. See “– Results of Operations – Impairment of Assets” and Note 4 “Asset Impairments” t o o ur
Consolidated Financial Statements in Item 8 of this report.
As a result of the continuing protracted industry downturn and these challenges, we are continuing to actively seek
ways to drive efficiency, reduce non-productive time and provide technical innovation to our customers. We exp ect
these innovations and efficiencies to result in faster and safer drilling and completion of wells, leading to lower overall
well costs to the benefit of our customers.
See “– Contract Drilling Backlog” for future commitments of our rigs during 2021 through 2024.
Contract Drilling Backlog
Contract drilling backlog, as presented below, includes only firm commitments (typically represented by signed
contracts) and is calculated by multiplying the contracted operating dayrate by the firm contract period . Our
calculation also assumes full utilization of our drilling equipment for the contract p erio d (ex clu di n g sch eduled
shipyard and survey days); however, the amount of actual revenue to be earned and the actual periods during wh ich
revenues will be earned will be different than the amounts and periods shown in the tables b elo w d ue t o v ariou s
factors. Utilization rates, which generally approach 92-98% during contracted periods, can be adversely impacted by
downtime due to various operating factors including weather conditions and unscheduled downtime for repairs a nd
maintenance, as well as COVID-19 related delays. Contract drilling backlog excludes revenues f or m o bilizat io n,
demobilization, contract preparation and customer reimbursables. No revenue is generally earned during perio ds o f
downtime for regulatory surveys. Changes in our contract drilling backlog between periods are generally a funct ion
34
of the performance of work on term contracts, as well as the extension or modification of existing term contracts and
the execution of additional contracts. In addition, under certain circumstances, our customers may seek to terminat e
or renegotiate our contracts, which could adversely affect our reported backlog.
See “Risk Factors – Risks Related to Our Business and Operations – We can provide n o a ssurance t hat o u r
drilling contracts will not be terminated early or that our current backlog of contract drilling revenue ultimately will
be realized” in Item 1A of this report.
The backlog information presented below does not, nor is it intended to, align with the disclo su res rela t ed t o
revenue expected to be recognized in the future related to unsatisfied performance obligations, which are present ed
in Note 3 “Revenue from Contracts with Customers” to our Consolidated Financial Stat ements in I t em 8 o f t h is
report. Contract drilling backlog includes only future dayrate revenue as described above, while t h e d isclo sure in
Note 3 excludes dayrate revenue and only reflects expected future revenue for mobilization , d emobiliza tio n a nd
capital modifications to our rigs, which are related to non-distinct promises within our signed contracts.
The following table reflects our contract drilling backlog attributable to future operations as of January 1, 2 0 21
(based on information available at that time), October 1, 2020 (the date reported in our Quarterly R epo rt o n Fo rm
10-Q for the quarter ended September 30, 2020), and January 1, 2020 (the date reported in our An n ual R ep ort o n
Form 10-K for the year ended December 31, 2019) (in millions).
January 1,
2021(1)
October 1,
2020(1)
January 1,
2020(1)
Contract Drilling Backlog
$
1,187 $
1,169 $
1,611
(1) Contract drilling backlog as of January 1, 2021, October 1, 2020 and January 1, 2020 excludes future
commitment amounts totaling approximately $75.0 million, $100.0 million and $100.0 million , resp ectiv ely ,
payable by a customer in the form of a guarantee of gross margin to be earned on future contracts or b y d irect
payment, pursuant to terms of an existing contract.
The following table reflects the amount of our contract drilling backlo g b y y ear a s o f Ja nuary 1 , 2 0 2 1 (in
millions).
Contract Drilling Backlog (1)
Total
$ 1,187 $
For the Years Ending December 31,
2022
2023
2021
2024
651 $
397 $
136 $
3
(1) Contract drilling backlog as of January 1, 2021 excludes future gross margin commitments totaling an aggregate
of approximately $75.0 million for the three-year period ending December 31, 2023. Pursuant t o t erms o f a n
existing contract, these amounts are payable by a customer in the form of a guarantee o f gro ss m argin t o b e
earned on future contracts or by direct payment at the end of such period.
The following table reflects the percentage of rig days committed by year as of January 1, 2021. The percentage
of rig days committed is calculated as the ratio of total days committed u nd er co n tract s, as well a s sch ed uled
shipyard, survey and mobilization days for all rigs in our fleet, to total available days (numb er o f rigs, in clu d in g
cold-stacked rigs, multiplied by the number of days in a particular year).
Rig Days Committed (1)
For the Years Ending December 31,
2021
73%
2022
40%
2023
10%
2024
0%
(1) As of January 1, 2021, includes approximately 325 rig days and 65 rig days currently known and scheduled f or
contract preparation, mobilization of rigs, surveys and extended repair and maintenance projects for t h e y ears
2021 and 2022, respectively.
Important Factors That May Impact Our Operating Results, Financial Condition or Cash Flows
Operating Income. Our operating income is primarily a function of contract drilling revenue earned less
contract drilling expenses incurred or recognized. The two most significant variables affecting our contract d rillin g
revenue are the dayrates earned and utilization rates achieved by our rigs, each of which is a function of rig supply and
35
demand in the marketplace. These factors are not entirely within our control and are difficult to predict. We gen erally
recognize revenue from dayrate drilling contracts as services are performed. Consequently, wh en a rig is id le, n o
dayrate is earned and revenue will decrease as a result.
Revenue is affected by the acquisition or disposal of rigs, rig mobilizations, req uired su rveys a nd sh ip yard
projects. In connection with certain drilling contracts, we may receive fees for the mobilization and demobiliza tio n
of equipment. In addition, some of our drilling contracts require downtime before the start of the contract to prepare
the rig to meet customer requirements for which we may or may not be compensated. We reco gn ize t hese f ees
ratably as services are performed over the initial term of the related drilling contracts. We defer m obiliza tio n a nd
contract preparation fees received (on either a lump-sum or dayrate basis), as well as direct and in cremental co st s
associated with the mobilization of equipment and contract preparation activities, and amortize each, on a st raigh t -
line basis, over the term of the related drilling contracts. As noted above, demobilization rev enue ex pect ed t o b e
received upon contract completion is estimated and is also recognized ratably over the initial term of the contract.
Operating income also fluctuates due to varying levels of contract drilling expenses. Our op erat ing ex p en ses
represent all direct and indirect costs associated with the operation and maintenan ce o f o u r d rillin g eq u ip m ent ,
which generally are not affected by changes in dayrates and short-term reductions in utilization. For instance, if a rig
is to be idle for a short period of time, few decreases in operating expenses may actually occur since the rig is
typically maintained in a prepared or warm-stacked state with a full crew. In addition, wh en a rig is id le, we a re
responsible for certain operating expenses such as rig fuel and supply boat costs, which are typically co sts o f o ur
customer when a rig is under contract. However, if a rig is expected to be idle for an extended p erio d o f t im e, we
may reduce the size of a rig’s crew and take steps to “cold stack” the rig, which lowers expenses and partially offsets
the impact on operating income. The cost of cold stacking a rig can vary depending on the type of rig. Th e co st o f
cold stacking a drillship, for example, is typically substantially higher than the cost of cold stacking an older float er
rig.
The principal components of our operating expenses include direct and indirect cost s o f la bo r a nd b enefit s,
repairs and maintenance, freight, regulatory inspections, boat and helicopter rentals and insurance. Labor and rep air
and maintenance costs represent the most significant components of our operating expenses. In general, o u r la bo r
costs increase primarily due to higher salary levels, rig staffing requirements and costs associated with labor
regulations in the geographic regions in which our rigs operate. In addition, the costs associated with training
employees can be significant. Costs to repair and maintain our equipment fluctuate d ep end ing u p o n t h e t y pe o f
activity the drilling unit is performing, as well as the age and condition of the equipment and the regio n s in wh ich
our rigs are working. See “– Contractual Cash Obligations – Pressure Control by the Hour®.”
Restructuring Costs. During 2020, we incurred $60.9 million in incremental professional fees f o r at to rney s,
financial advisors and other professionals related to the consideration of restructuring alternat ives, in clu din g t h e
preparation for filing of the Chapter 11 Cases and related matters, and in connection with the Chapter 11 Cases. We
expect to incur incremental costs of approximately $70 million during 2021 for similar professionals and serv ices.
See “– Results of Operations – Restructuring and Separation Costs” and “– Results of Operations – Reorganizati on
items, net.”
COVID-19 Pandemic. The most immediate impact and risks to our business a s a resu lt o f t h e C OVI D -19
outbreak and efforts to mitigate the spread of the virus have been to the safety of our personnel, a s wel l a s t ra v el
restrictions that have challenged the ability to move personnel, equipment, supplies and service person nel t o -a nd-
from our drilling rigs. In some instances, we have asked our rig crews to quarantine in -co unt ry b efore o f fshore
rotations, as well as to remain in country after their offshore rotation, resulting in incremental costs for salaries an d
other employee-related expenses such as meals and lodging. Our employee travel costs have also increased d ue t o
decreased passenger capacity on carriers, requiring additional trips to move personn el. I n so me cases, we in cu r
freight surcharges to bring equipment and supplies to our rigs. We have also incurred additional costs to deep-clean
facilities, for medical personnel and to purchase medical supplies and personal protective equipment.
With respect to protecting our crews and, thus, our rig operations, we have adopted COVID-19 testing
requirements based on the regions in which our rigs are operating that primarily require testing of all personnel prior
to an offshore rotation or travel from the U.S. to an international location. Additionally, for most of our rigs we have
implemented the following health protocols once personnel are on board a rig:
36
• 14-day isolation of our crew prior to reporting for crew change;
• decreased crew change frequency to minimize the frequency of travel and turnover of crew;
•
•
•
•
•
•
twice daily temperature checks;
eliminated large group meetings;
reduced seating capacity in galley for social distancing;
eliminated self-servicing of food;
increased frequency of disinfectant cleaning in communal areas on the rig; and
reduced number of personnel in elevators to a maximum of four.
In addition, the Ocean Monarch was previously expected to commence drilling operations in Myanmar in la t e
March 2020. As a result of the COVID-19 pandemic and restrictions put in place by the Republic of t h e Un io n o f
Myanmar, the start of the drilling contract was delayed until December 2020. During the delay, the Ocean
Monarch was warm stacked in Johor Bahru, Malaysia where it earned a standby rate intended t o co ver o ur d aily
operating costs while waiting to commence its contract. The Ocean Monarch commenced d rillin g o p era tio ns in
December 2020 and follows enhanced protocols intended to protect the health of the rig crew and prevent a
shutdown of rig operations.
During the year ended December 31, 2020, we incurred incremental costs of appro ximately $ 12.5 m illio n
related to the COVID-19 pandemic. We expect to incur similar types of costs during 2021 but ca nnot p redict t he
future financial impact of our response to the pandemic nor its duration in this fluid environment . As su ch , co sts
may be more than projected, perhaps by a material amount.
Regulatory Surveys and Planned Downtime. Our operating income is negatively impacted wh en we p erfo rm
certain regulatory inspections, which we refer to as a special survey, that are due every five years f or m o st o f o ur
rigs. The inspection interval for our North Sea rigs is two-and-one-half years. Operating revenue decreases because
these special surveys are generally performed during scheduled downtime in a shipyard. Operating expenses
increase as a result of these special surveys due to the cost to mobilize the rigs to a shipyard, inspection costs
incurred and repair and maintenance costs, which are recognized as incurred. Repair and maintenance activities may
result from the special survey or may have been previously planned to take place during this mandatory do wntime .
The number of rigs undergoing a special survey will vary from year to year, as well as from quarter to quarter.
During 2021, we expect to spend approximately 325 days of planned downtime, including a ppro ximately an
aggregate 155 days, 95 days and 55 days for mobilization and contract preparation activities for the Ocean
BlackRhino, Ocean Courage and Ocean Onyx, respectively. We also expect to spend approximately 20 days for an
intermediate survey for the Ocean Patriot in the first quarter of 2021. We can provide no assurance as to th e exact
timing and/or duration of downtime associated with these or other projects. See “ – Contract Drilling Backlog.”
Physical Damage and Marine Liability Insurance. We are self-insured for physical damage to rigs and
equipment caused by named windstorms in the U.S. Gulf of Mexico. If a named win d st orm in t h e U.S. Gu lf o f
Mexico causes significant damage to our rigs or equipment, it could have a material adverse effect on our fin ancial
condition, results of operations and cash flows. Under our current insurance p o licy, we ca rry p h ysical d amage
insurance for certain losses other than those caused by named windstorms in the U.S. Gulf of Mex ico f o r wh ich o ur
deductible for physical damage is $25.0 million per occurrence. We do not typically ret ain lo ss -of-hire in surance
policies to cover our rigs.
In addition, we carry marine liability insurance covering certain legal liabilities, including coverage for cert ain
personal injury claims, and generally covering liabilities arising out of or relating to pollution and/or environmental
risk. We believe that the policy limit for our marine liability insurance is within the ra n ge t hat is cu st o mary f or
companies of our size in the offshore drilling industry and is appropriate for our business. Under these policies o u r
deductibles for marine liability coverage related to insurable events arising due to named win d st orms in t h e U.S.
Gulf of Mexico are $25.0 million for the first occurrence a nd vary in amounts ranging between $25.0 million and, if
37
aggregate claims exceed certain thresholds, up to $100.0 million for each subsequent occurrence, depending o n t he
nature, severity and frequency of claims that might arise during the policy year. Our deductibles f or o t her marin e
liability coverage, including personal injury claims not related to named windstorms in the U.S. Gulf of Mexico, are
$5.0 million for the first occurrence and vary in amounts ranging between $5.0 million a nd , if a ggregat e cla i ms
exceed certain thresholds, up to $100.0 million for each subsequent occurrence, depending on the nat ure, sev erit y
and frequency of claims that might arise during the policy year.
Impact of Changes in Tax Laws or Their Interpretation. We operate through o u r v ariou s su bsid iaries in a
number of jurisdictions throughout the world. As a result, we are subject to highly complex tax la ws, t reat ies an d
regulations in the jurisdictions in which we operate, which may change and are subject to interpretation. Changes in
laws, treaties and regulations and the interpretation of such laws, treaties and regula tio ns may p ut u s a t risk f o r
future tax assessments and liabilities which could be substantial and could have a material a dverse eff ect o n o ur
financial condition, results of operations and cash flows.
Critical Accounting Estimates
Our significant accounting policies are included in Note 1 “General Information” to our Consolidated Financial
Statements in Item 8 of this report. Judgments, assumptions and estimates by our management are in h erent in t h e
preparation of our financial statements and the application of our significant accounting policies. We believe that our
most critical accounting estimates are as follows:
Property, Plant and Equipment. We carry our drilling and other property and equipment at cost , less
accumulated depreciation. Maintenance and routine repairs are charged to income currently while replacements an d
betterments that upgrade or increase the functionality of our existing equipment and that signif icantly ex t end t he
useful life of an existing asset, are capitalized. Significant judgments, assumptions and estimates may be required in
determining whether or not such replacements and betterments meet the criteria for capitalization and in determining
useful lives and salvage values of such assets. Changes in these judgments, a ssumptio ns a nd estimat es co uld
produce results that differ from those reported. During the years ended December 31, 2020 and 2019, we capitalized
$137.4 million and $343.8 million, respectively, in replacements and betterments of our drilling fleet.
We evaluate our property and equipment for impairment whenever changes in circumstances indicat e t hat t h e
carrying amount of an asset may not be recoverable (such as, but not limited to, cold stacking a rig, the expectatio n
of cold stacking a rig in the near future, contracted backlog of less than one year for a rig, a d ecisio n t o ret ire o r
scrap a rig, or excess spending over budget on a newbuild, construction project, reactivation or major rig u p gra d e).
We utilize an undiscounted probability-weighted cash flow analysis in testing an asset for potential impairment. Our
assumptions and estimates underlying this analysis include the following:
• dayrate by rig;
• utilization rate by rig if active, warm-stacked or cold-stacked (expressed as the actual percentage o f t im e
per year that the rig would be used at certain dayrates);
•
•
•
•
•
the per day operating cost for each rig if active, warm-stacked or cold-stacked;
the estimated annual cost for rig replacements and/or enhancement programs;
the estimated maintenance, inspection or other reactivation costs associated with a rig returning to work;
salvage value for each rig; and
estimated proceeds that may be received on disposition of each rig.
Based on these assumptions, we develop a matrix for each rig under evaluation using multiple
utilization/dayrate scenarios, to each of which we assign a probability of o ccurrence . We a rriv e a t a p roj ected
probability-weighted cash flow for each rig based on the respective matrix and compare such amount to the carrying
value of the asset to assess recoverability.
38
The underlying assumptions and assigned probabilities of occurrence for utilization and dayrate scenarios a re
developed using a methodology that examines historical data for each rig, which considers the rig’s age, rated water
depth and other attributes and then assesses its future marketability in light of the cu rren t a nd p roj ected m arket
environment at the time of assessment. Other assumptions, such as operating, maintenance, inspection and
reactivation costs, are estimated using historical data adjusted for known developments, cost projections for re-entry
of rigs into the market and future events that are anticipated by management at the time of the assessment.
Management’s assumptions are necessarily subjective and are an inherent part of our asset impairment
evaluation, and the use of different assumptions could produce results that differ from those reported. Our
methodology generally involves the use of significant unobservable inputs, representative of a Level 3 f air v a lu e
measurement, which may include assumptions related to future dayrate revenue, costs and rig u t iliza t io n , q uo tes
from rig brokers, the long-term future performance of our rigs and future market conditions. Management’s
assumptions involve uncertainties about future demand for our services, dayrates, expenses and other future events,
and management’s expectations may not be indicative of future outcomes. Significant unanticipated changes to these
assumptions could materially alter our analysis in testing an asset for potential impairment. For example, changes in
market conditions that exist at the measurement date or that are projected by management co uld af fect o u r k ey
assumptions. Other events or circumstances that could affect our assumptions may include, but are not limited t o , a
further sustained decline in oil and gas prices, cancelations of our drilling contracts or contracts of our competito rs,
contract modifications, costs to comply with new governmental regulations, capital expenditu res req u ired d u e t o
advances in offshore drilling technology, growth in the global oversupply of oil and geopolit ical ev en ts, su ch a s
lifting sanctions on oil-producing nations. Should actual market conditions in the future v ary sign if icantly f rom
market conditions used in our projections, our assessment of impairment would likely be different.
During 2020, we recorded an aggregate impairment charge of $842.0 million relating to four drillin g rigs. We
did not incur an impairment loss in 2019. See “– Results of Operations – Impairment of Assets” and Note 4 “Asset
Impairments” to our Consolidated Financial Statements in Item 8 of this report.
Income Taxes. We account for income taxes in accordance with accounting standards that require the
recognition of the amount of taxes payable or refundable for the current year and an asset and liability a pproach in
recognizing the amount of deferred tax liabilities and assets for the future tax consequences of events that have been
currently recognized in our financial statements or tax returns. In each of our tax jurisdictions we recognize a current
tax liability or asset for the estimated taxes payable or refundable on tax returns for the current year and a d eferred
tax asset or liability for the estimated future tax effects attributable to temporary differences a nd ca rryfo rward s .
Deferred tax assets are reduced by a valuation allowance, if necessary, which is determined by the amount of any tax
benefits that, based on available evidence, are not expected to be realized under a “more likely than not” ap proach .
We make judgments regarding future events and related estimates especially as they pertain to the forecasting of our
effective tax rate, the potential realization of deferred tax assets such as net operating loss carryforwards, utilizatio n
of foreign tax credits, and exposure to the disallowance of items deducted on tax returns upon audit.
In several of the international locations in which we operate, certain of our wholly -owned subsidiaries enter into
agreements with other of our wholly-owned subsidiaries to provide specialized services and equipment in support of
our foreign operations. We apply a transfer pricing methodology to determine the arm’s length amount to be charged
for providing the services and equipment and utilize outside consultants to assist us in t h e d ev elopment o f su ch
transfer pricing methodologies. In most cases, there are alternative transfer pricing metho dolo gies t hat co uld b e
applied to these transactions and, if applied, could result in different chargeable amounts.
39
Results of Operations
Our operating results for contract drilling services are dependent on three primary metrics or key performance
indicators: revenue-earning, or R-E, days, rig utilization and average daily revenue. The followin g t a ble p resen ts
these three key performance indicators and other comparative data relating to our revenues and operating expenses (in
thousands, except days, daily amounts and percentages).
Year Ended December 31,
2020
2019
REVENUE-EARNING DAYS (1)
UTILIZATION (2)
AVERAGE DAILY REVENUE (3)
CONTRACT DRILLING REVENUE
REVENUE RELATED TO REIMBURSABLE
EXPENSES
TOTAL REVENUES
CONTRACT DRILLING EXPENSE,
EXCLUDING DEPRECIATION
REIMBURSABLE EXPENSES
OPERATING LOSS
Contract drilling services, net
Reimbursable expenses, net
Depreciation
General and administrative expense
Impairment of assets
Restructuring and separation costs
Gain (loss) on disposition of assets
Total Operating Loss
Other income (expense):
Interest income
Interest expense, net of amounts capitalized
Foreign currency transaction loss
Reorganization items, net
Other, net
Loss before income tax benefit
Income tax benefit
NET LOSS
2,936
59 %
$ 227,000 $ 272,600
3,317
56 %
$ 692,753 $ 934,934
40,934
45,710
$ 733,687 $ 980,644
$ 618,553
$
38,900 $
$ 793,412
45,016
$
74,200 $ 141,522
694
2,034
(355,596 )
(320,085 )
(67,878 )
(56,925 )
—
(842,016 )
—
(17,724 )
(1,072 )
7,375
$ (1,153,141 ) $ (282,330 )
484
(42,585 )
(4,498 )
(76,910 )
560
(1,276,090 )
21,186
6,382
(122,832 )
(3,936 )
—
702
(402,014 )
44,800
$ (1,254,904 ) $ (357,214 )
(1) An R-E day is defined as a 24-hour period during which a rig earns a dayrate after commencement of operations
and excludes mobilization, demobilization and contract preparation days.
(2) Utilization is calculated as the ratio of total R-E days divided by the total calendar days in t h e p erio d f or a ll
specified rigs in our fleet (including two cold-stacked floater rigs at both December 31, 2020 and 2019).
(3) Average daily revenue is defined as total contract drilling revenue for all of the specified rigs in our fleet per R -
E day.
2020 Compared to 2019
Contract Drilling Revenue. Contract drilling revenue decreased $ 242.2 m illio n in 2 02 0 compared t o 2 0 19,
primarily due to lower average daily revenue earned ($138.3 million) and 381 fewer R-E days ($103.9 millio n ). Th e
decrease in average daily revenue was primarily due to both the Ocean BlackHornet and Ocean BlackLion starting new
contracts in 2020 at significantly lower dayrates than the rigs’ previous contracts and the Ocean Mona rch earning a
reduced standby rate during most of 2020 due to COVID-19 related delays. R-E days decreased, compared t o 2 019 ,
primarily due to cold stacking the Ocean Valiant and Ocean GreatWhite (an aggregate 507 fewer R-E days)
40
and incremental downtime attributable to the warm stacking of rigs between contracts (450 fewer R-E days), partially
offset by incremental R-E days for the Ocean Endeavor (180 additional R-E days), which was reactivat ed f or a n ew
contract that commenced during the second quarter of 2019, less d ownt ime f or p lanned sh ipyard p roject s a nd
mobilization of rigs (266 additional R-E days) and less unplanned downtime for rig rep a irs a nd maint enance ( 1 30
additional R-E days). The decline in revenues during 2020 was partially offset by revenue recognized during t h e f irst
quarter of 2020 related to the reimbursement of withholding taxes related to one of our rigs in Brazil ($8.8 million).
Contract Drilling Expense, Excluding Depreciation. Contract drilling expense, excluding depreciation, decreased
$174.9 million during 2020 compared to 2019, primarily due to lower amortization of previo usly d eferred con tract
preparation and mobilization costs ($73.2 million), primarily related to a 2019 contract in t h e U.K. f o r t he Ocean
GreatWhite and contract completions in 2020, combined with lower costs for repairs, maintenance an d in spectio ns
($45.6 million), labor and personnel ($21.3 million), equipment rentals ($6.6 million), the absence of a contingent loss
reserve for a non-income tax assessment in 2019 ($7.1 million) and other decreased rig costs ($ 10.6 m illio n ). The
overall reduction in rig operating expense during 2020 also reflected a reduction in sh o rebase a nd o verh ead c osts
related to restructuring efforts ($27.0 million) in 2020. These cost reductions were part ially o f fset b y a n in crease
in other rig moving costs, including fuel ($16.5 million).
Depreciation Expense. Depreciation expense for 2020 decreased $35.5 million co mpared t o 2 01 9. Th e n et
reduction in depreciation expense was primarily due to a lower depreciable asset base in 2020 as a result o f a sset
impairments recognized during the first quarter of 2020.
General and Administrative Expense. General and administrative expense decreased $11.0 million durin g 2 0 20
compared to 2019, primarily due to reduced payroll costs associated with recent restructuring efforts ($3.5 millio n ),
lower travel costs due to COVID-19 related restrictions ($1.7 million) and a net decrease in o t h er a dminist rativ e
costs ($5.8 million), including reduced costs associated with our services agreement with Loews Corporation, which
was terminated on April 24, 2020.
Impairment of Assets. During the first quarter of 2020, we recognized an aggregate impairment charge of
$774.0 million to write down four of our drilling rigs with indicators of impairment to their estimated f air v a lues .
We recognized an additional $68.0 million impairment charge during the fourth quarter of 2 0 20, t o f u rther writ e
down the carrying value of one rig previously impaired during the first quarter of 2020 based on additional
information regarding future opportunities for the rig. See Note 4 “Asset I m pairmen ts” an d No t e 8 “Fin an cial
Instruments and Fair Value Disclosures” to our Consolidated Financial Statements in Item 8 of this report.
Restructuring and Separation Costs. Prior to the Petition Date, we incurred $7.4 millio n in lega l a n d o t her
professional advisor fees in connection with the consideration of restructuring alternatives, including the preparation
for filing of the Chapter 11 Cases and related matters. Also, during 2020, we initiated a plan to reduce the number of
employees in our world-wide organization in an effort to restructure our business operations and reduce o perat in g
costs. As a result of this initiative, we incurred costs of $10.3 million during 2020, primarily f o r sev eran ce an d
related costs associated with a reduction in personnel in our corporate offices, warehouse facilities and certain of our
international shorebase locations. See Note 14 “Restructuring and Separation Costs” to our Consolidated Fin ancial
Statements in Item 8 of this report.
Interest Expense. Interest expense for 2020 decreased $80.2 millio n co mpared t o 2 0 19, p rim arily d u e t o
decreased interest recognized on our Senior Notes and Revolving Credit Facility in 2020 as compared to 2 019 . We
ceased accruing interest expense on our senior unsecured debt and borrowings under the Revolving Credit
Agreement upon filing the Chapter 11 Cases on April 26, 2020. As a result, we did not reco rd $ 76 .7 m illio n a nd
$21.3 million of contractual interest expense related to our Senior Notes an d b orro win gs d rawn in 2 0 2 0 u n der
our Revolving Credit Agreement, respectively, for 2020. See Note 2 “Chapter 11 Proceedings” to our Consolidated
Financial Statements in Item 8 of this report.
Reorganization Items, net. We recognized $76.9 million in expenses and other net losses directly related to t h e
Chapter 11 Cases in 2020, primarily consisting of incremental professional fees ($53.5 millio n ) in cu rred an d t h e
write-off of debt issuance costs associated with our Senior Notes ($27.6 million), partially offset by net gains related
to vendor settlements and purchase order cancellations ($4.2 million). See Note 2 “Chapter 11 Proceedings” t o o ur
Consolidated Financial Statements in Item 8 of this report.
41
Income Tax Benefit. We recorded a net income tax benefit of $21.2 million (1.7% effective t ax rat e) f or 2 0 20,
compared to an income tax benefit of $44.8 million (11.1% effective tax rate) f o r 2 019. Th e t ax b enefit f or 2 020
included a net tax benefit of $9.7 million due to a partial release of a previously recognized valuation allowance and tax
rate change, as a result of the Coronavirus Aid, Relief and Economic Security Act, or the CARES Act. Th e C AR ES
Act was signed into law on March 27, 2020 and allowed a carryback of net operating losses generated in 2 0 18, 2 019
and 2020 to each of the five preceding taxable years. Income tax benefit for 2019 included a net $14.2 million in come
tax benefit associated with the reduction in our estimate of our transition tax liability p ursua nt t o f inal regu lat ions
issued by the Internal Revenue Service in June 2019.
Other than these discrete tax amounts, the reduction in the effective tax rate in 2020, compared t o 2 019, wa s in
large part due to $842.0 million in impairment charges recognized in 2020, wit h n o t ax b en efit , and in cremental
valuation allowances recorded in 2020 of $ 69.2 million, compared to $30.7 million in 2019.
Liquidity and Capital Resources
As of January 1, 2021, our contractual backlog was $1.2 billion, of which $0.7 billion is expected to be realized
in 2021. At December 31, 2020, we had cash available for current operations of $405.9 million.
The terms of the PSA entered into on January 22, 2021 stipulate that upon emergence f rom t he C hapt er 1 1
Cases, the reorganized Company will enter into new exit financing facilities consisting of:
(a) a $300.0 million to $400.0 million aggregate principal amount first lien, first out exit revolving credit facilit y
(or Exit Revolving Credit Facility), plus a commitment fee of approximately $3.5 million payable in k in d in
the form of additional drawn commitments under the Exit Revolving Credit Facility, wh ich shall in crea se
both the amount of drawn and total commitments thereunder, in exchange for pro vid in g su ch n ew m oney
commitments.;
(b) a $100.0 million to $200.0 million aggregate principal amount first lien, last out exit term loan facility; and
(c) $110.0 million aggregate principal amount in first lien, last out exit notes (or Exit Notes) p lu s $ 9 .9 millio n
aggregate principal amount of additional Exit Notes issued on account o f t h e C ommitment Premiu m (as
defined in the Backstop Agreement) payable in kind in the form of additional Exit Notes..
The PSA contemplates that (i) the Exit Revolving Credit Facility will be fully committed, wit h u p t o $ 1 00.0
million drawn as of the Effective Date, as defined in the Plan included in the PSA, and (ii) $75.0 million of the Ex it
Notes will be issued and outstanding as of the Effective Date, excluding $9.9 million aggregate principal amount o f
additional Exit Notes issued on account of the Commitment Premium, while $35.0 million of t h e Ex it No tes will
remain fully committed but undrawn as of the Effective Date and will be available through a delayed draw
mechanism pursuant to the terms of the Exit Notes.
See Note 18 “Subsequent Event” to our Consolidated Financial Statements in Item 8 of this report.
Although we anticipate that the financial restructuring pursuant to our Chapter 11 Cases will help a d d ress o u r
liquidity concerns, uncertainty remains over the Bankruptcy Court's approval and our successful implementatio n o f
the Plan and therefore substantial doubt exists as to our ability to continue as a going concern at this time. Financial
information in this report has been prepared on the basis that we will continue as a going concern, which p resumes
that we will be able to realize our assets and discharge our liabilities in the no rmal course of business as th ey come
due. Financial information in this report does not reflect the adjustments to the carrying values of assets and
liabilities and the reported expenses and balance sheet classifications that would be necessary if we were u n a ble t o
realize our assets and settle our liabilities as a going concern in the normal course of operations. Such adj ustments
could be material. Our long-term liquidity requirements, the adequacy of capital resources and ability to continue as
a going concern are difficult to predict at this time and ultimately cannot be determined until the Pla n, o r a n ot her
Chapter 11 plan of reorganization, has been approved by the Bankruptcy Court. If our future sources of liquidity are
insufficient, we could face substantial liquidity constraints and could be unable to continue as a going co ncern a nd
would likely be required to significantly reduce, delay or eliminate capital expenditures, im p lemen t f u rther co st
reductions, or seek other financing alternatives.
42
Our worldwide cash balances are available to finance both our domestic and foreign activ it ies. I f and wh en
circumstances require, we expect to record the withholding tax impact associated with the potential distrib u tio n o f
earnings of our foreign subsidiaries; however, we have not provided income tax on the outside basis d if f erence o f
our international subsidiaries as management does not intend to dispose of these subsidiaries and structuring
alternatives exist to mitigate any potential liability should a disposition take place.
We have historically invested a significant portion of our cash flows in the enhancement of our drilling fleet and
our ongoing rig equipment replacement and capital maintenance programs. The amount of cash required to meet our
capital commitments is determined by evaluating the need to upgrade our rigs to meet specific customer
requirements and our rig equipment enhancement, maintenance and replacement p ro grams. We m ak e p erio dic
assessments of our capital spending programs based on current and expected industry conditions and our cash f lo w
forecast.
Sources and Uses of Cash
Our operating activities provided net cash of $8.4 million in 2020. Our other sources of cash d u rin g t h e y ear
were borrowings under the Revolving Credit Agreement ($436.0 million) and proceeds from the sales of the Ocean
Confidence ($4.6 million), our corporate headquarters office building in Houston, Texas ($7.5 million) and Trinidad
bonds ($5.9 million). See “- Credit Agreements” and Note 5 “Supplemental Financial Informatio n” an d No t e 1 0
“Credit Agreements and Senior Notes” to our Consolidated Financial Statements in Item 8 of this report.
We used cash aggregating $189.5 million for capital expenditures during 2020.
Cash Flow from Operations. Cash flow from operations in 2020 decreased $0.7 millio n co mpared t o 2 019 ,
primarily due to lower cash receipts for contract drilling services ($157.2 million), combined with collateral deposits
made in support of certain outstanding surety and other bonds and letters of credit ($18.3 million). The reductio n in
operating cash inflows was partially offset by the favorable effects of lower net cash ex pen dit ures f or co n tract
drilling, shorebase support and general and administrative costs in 2020 compared to 2019 ($125.4 million) and t he
receipt of cash income tax refunds, net of payments ($30.6 million) in 2020 compared to net cash taxes paid ($ 1 8.8
million) in 2019.
Upgrades and Other Capital Expenditures. As of the date of this report, we expect cash capital expenditures in
2021 to be approximately $120 million to $150 million. Planned spending in 2021 associated wit h p ro j ects u n der
our capital maintenance and replacement programs includes equipment upgrades for the Ocean BlackRhino, Ocea n
BlackLion and Ocean Courage.
Credit Agreements. Effective March 17, 2020, we terminated our $225.0 million revolving cred it a greemen t,
which was scheduled to mature on October 22, 2020. At the time of termination, there were no borrowings
outstanding under the facility. We did not incur any early termination penalties in connection with the t erminatio n
and wrote off $0.5 million in deferred arrangement fees associated with the facility.
In March 2020, we borrowed $436.0 million under our $950.0 million senior 5-year Revolving Credit
Agreement, which we entered into on October 2, 2018. The principal and interest under the Revolving Credit
Agreement became immediately due and payable upon filing of the Chapter 11 Cases, which constituted an event of
default under the Revolving Credit Agreement. However, any efforts to enforce su ch payment o bliga t ions a re
automatically stayed as a result of the filing of the Chapter 11 Cases, and th e creditors’ righ t s o f en f orcement in
respect of the Revolving Credit Agreement are subject to the applicable provisions of the B an krup tcy C o de. Th e
outstanding borrowings and accrued interest have been presented as “Liabilities su b j ect t o co mpromise” in o u r
Consolidated Balance Sheets at December 31, 2020.
Additionally, as a result of the filing of the Chapter 11 Cases, we received notification on April 2 8 , 2 0 2 0 t h at
the commitments under our Revolving Credit Agreement had been reduced from $950 millio n t o a ppro ximately
$442.0 million, representing the amount of borrowings outstanding plus the value of a $6.0 million financial letter of
credit, which was issued in January 2020 under the Revolving Credit Agreement in support of a previo usly issu ed
surety bond.
43
See Note 10 “Credit Agreements and Senior Notes” to our Consolidated Financial Statements in Item 8 o f t his
report.
Senior Notes. As of December 31, 2020, we had an aggregate $2.0 billion in Senior No t es o u t standin g wit h
stated maturities at various times beginning in 2023 through 2043. The filing of the Chapter 11 Cases constituted an
event of default that accelerated the Company’s obligations under our Senior Notes. As a result, the p rin cipal a n d
accrued interest thereon are immediately due and payable and have been presented as “Liabilities subject to
compromise” in our Consolidated Balance Sheets at December 31, 2020. However, a ny ef fort s t o en force su ch
payment obligations are automatically stayed as a result of the filing of the Ch apter 11 Cases, a nd t he credit o rs’
rights of enforcement in respect of the Senior Notes are subject to the applicable provisions of the Bankruptcy Code.
See Note 10 “Credit Agreements and Senior Notes” to our Consolidated Financial Statements in Item 8 o f t his
report.
Credit Ratings
Following the commencement of the Chapter 11 Cases, Moody’s Invest ors Serv ice, I nc. a nd S&P Glo b al
Ratings lowered our credit ratings to default status. They subsequently withdrew our issued credit ratings and
outlook and have discontinued their rating coverage of the Company.
Contractual Cash Obligations
The following table sets forth our contractual cash obligations at December 31, 2020 (in thousands).
Payments Due By Period
Contractual Obligations (1)
Senior notes (principal and interest) (2)
Credit facility borrowings (4)
Well Control Equipment services agreement
Operating leases
Total obligations
2021
Total
2022-2023 2024-2025 Thereafter
$ 3,726,909 $ 234,784 (3) $ 476,125 $ 708,875 $ 2,307,125
—
466,365 466,365
—
15,488
211,162 39,113 78,227 78,334
181,080 33,320 65,176 60,949
21,635
$ 4,585,516 $ 773,582 $ 619,528 $ 848,158 $ 2,344,248
—
(1) The above table excludes $55.8 million of total net unrecognized tax benefits related to uncertain tax posit io ns
that could result in a future cash payment as of December 31, 2020. Due to t h e h igh d egree o f u ncert aint y
regarding the timing of future cash outflows associated with the liabilities recognized in these balances, we a re
unable to make reasonably reliable estimates of the period of cash settlement with the respective taxing
authorities.
(2) Contractual obligations related to our Senior Notes are presented in the table above in acco rdance wit h t h eir
stated maturities. However, the filing of the Chapter 11 Cases constituted an event of default that a ccelerated
the Company’s obligations under our Senior Notes. As a result, the principal and accrued interest t h ereon are
immediately due and payable and have been presented as “Liabilities subject to compromise” in our
Consolidated Balance Sheets at December 31, 2020.
(3)
Includes unpaid interest on our Senior Notes through December 31, 2020 of which $45.0 m illio n rep resent s
accrued interest recognized prior to the Petition Date and $76.7 million of contractual interest expense rela t ing
to the period after the Petition Date, which has not been recorded in our Consolidated Statements of Operations
for the year ended December 31, 2020.
(4) Contractual obligations under our Revolving Credit Agreement include outstanding borrowings in the aggregate
amount of $436.0 million and unpaid interest accrued through December 31, 2020, including $ 2.7 m illio n o f
accrued interest recognized prior to the Petition Date and $21.3 million of contractual interest expense rela t ing
to the period after the Petition Date, which has not been recorded in our Consolidated Statements of Operations
for the year ended December 31, 2020. However, the exact amount of interest relating to the p eriod af ter t h e
Petition Date is subject to final determination in accordance with the Plan.
44
Pressure Control by the Hour®. In 2016, we entered into a ten-year agreement wit h a su bsid iary o f B aker
Hughes Company (formerly known as Baker Hughes, a GE company), or Baker Hughes, to provide serv ices wit h
respect to certain blowout preventer and related well control equipment, or Well Control Equipment , o n o u r f o ur
drillships. Such services include management of maintenance, certification and relia bilit y wit h resp ect t o su ch
equipment. In connection with the contractual services agreement, we sold the Well C o n t ro l Eq u ipment o n o ur
drillships to a Baker Hughes subsidiary and are leasing it back over separate ten-year operating leases for
approximately $26 million per year in the aggregate. Collectively, we refer to the contractual services agreement and
corresponding operating lease agreements with the Baker Hughes affiliate as the “PCbtH program.” See No t e 1 1
“Commitments and Contingencies,” Note 12 “Leases and Lease Commitments” and Note 18 “Subsequent Event” to
our Consolidated Financial Statements in Item 8 of this report.
Except for our contractual requirements under the PCbtH program discussed above, we had no other p u rchase
obligations for major rig upgrades or any other significant obligations at December 3 1 , 2 0 20, ex cept f o r t h ose
related to our direct rig operations, which arise during the normal course of business.
Other Commercial Commitments - Letters of Credit
We were contingently liable as of December 31, 2020 in the amount of $32.5 million under certain tax,
performance, supersedeas, VAT and customs bonds and letters of credit. Agreements rela tin g t o a ppro ximately
$24.2 million of customs, tax, VAT and supersedeas bonds can require collateral at any time, while t h e remain in g
agreements, aggregating $8.3 million, cannot require collateral except in events of default. During t h e y ear en ded
December 31, 2020, a $6.0 million financial letter of credit was issued on our behalf as collateral in suppo rt o f o u r
outstanding surety bonds. The financial letter of credit was drawn on by the beneficiary in Jan uary 2 0 21 a nd was
converted to an adjusted base rate loan under our Revolving Credit Agreement. During 2020, we a lso m ade ca sh
collateral deposits of $17.5 million with respect to other bonds and letters of credit, which are reco rded in “Ot h er
assets” in our Consolidated Balance Sheets at December 31, 2020. The table below provides a list of these
obligations in U.S. dollar equivalents and their time to expiration (in thousands).
Other Commercial Commitments
Tax bonds
Performance bonds
Collateral letter of credit
Supersedeas bonds
Customs bonds
Other
Total obligations
Off-Balance Sheet Arrangements
For the Years Ending
December 31,
Total
2021
2022
$
$
15,172 $
7,100
6,034
2,600
1,512
97
32,515 $
2,512 $
7,100
6,034
2,600
1,512
—
19,758 $
12,660
—
—
—
—
97
12,757
At December 31, 2020 and 2019, we had no off-balance sheet debt or other off-balance sheet arrangements.
Other
Operations Outside the U.S. Our operations outside the U.S. accounted for approximately 54%, 47% a nd 4 1 %
of our total consolidated revenues for the years ended December 31, 2020, 2019 and 2018, respectively. See “R isk
Factors – Regulatory and Legal Risks – Significant portions of our operations are conducted outside t h e U.S . a n d
involve additional risks not associated with U.S. domestic operations” in Item 1A of this report.
Currency Risk. Some of our subsidiaries conduct a portion of their operat ion s in t h e lo cal cu rrency o f t he
country where they conduct operations, resulting in foreign currency exposure. Currency environments in which we
currently have or previously had significant business operations include Australia, Brazil, Egypt, Malaysia, Mexico,
Trinidad and Tobago and the U.K., creating exposure to certain monetary assets a nd lia b ilit ies d en ominat ed in
45
currencies other than the U.S. dollar. These assets and liabilities are revalued based on currency exchange ra tes at
the end of the reporting period.
To reduce our currency exchange risk, we may, if possible, arrange for a portion of our international co n tract s
to be payable to us in local currency in amounts equal to our estimated operating costs payable in lo ca l cu rren cy ,
with the balance of the contract payable in U.S. dolla rs. The revaluation of liabilities den ominat ed in cu rrencies
other than the U.S. dollar related to foreign income taxes, including deferred tax assets and liabilities and uncertain
tax positions, is reported as a component of “Income tax benefit” in our Consolidated Statements of Operations.
46
Forward-Looking Statements
We or our representatives may, from time to time, either in this report, in periodic press releases or o t herwise,
make or incorporate by reference certain written or oral statements that are “forward-looking statements” within t h e
meaning of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Sect ion 2 1E o f t h e
Exchange Act. All statements other than statements of historical fact are, or may be deemed to be, forward-lo ok ing
statements. Forward-looking statements include, without limitation, any statement that may p roj ect, in d icat e o r
imply future results, events, performance or achievements, and may contain or be identified by the words “expect ,”
“intend,” “plan,” “predict,” “anticipate,” “estimate,” “believe,” “should,” “could,” “may,” “might,” “will,” “will be,”
“will continue,” “will likely result,” “project,” “forecast,” “budget” and similar expressions. In addition, any
statement concerning future financial performance (including, without limitatio n, f u tu re rev enu es, earn ings o r
growth rates), ongoing business strategies or prospects, and possible actions taken by or against us are also forward-
looking statements as so defined. Statements made by us in this report that contain forward-looking statements m ay
include, but are not limited to, information concerning our possible or assumed future resu lt s o f o peratio ns a nd
statements about the following subjects:
• our ability to continue as a going concern;
•
any potential debt restructuring and refinancing and access to sources of liquidity, including t h e PSA a n d
the restructuring and new exit financing facilities contemplated by the PSA;
• our ability to obtain Bankruptcy Court approval with respect to motions o r o t h er req u est s made t o t he
Bankruptcy Court in the Chapter 11 Cases, including maintaining strategic control as debtors-in-possession
and the outcomes of Bankruptcy Court rulings or the Plan and the Chapter 11 Cases in general;
• delays in the Chapter 11 Cases;
• our ability to confirm and consummate the Plan or any other plan of reorganization that rest ru ctures o ur
debt obligations to address our liquidity issues and allows emergence from the Chapter 11 Cases;
•
•
•
•
•
•
•
the effects of the Chapter 11 Ca ses on our operations, including our relationships with employees,
regulatory authorities, customers, suppliers, banks, insurance companies and other third parties, and
agreements;
the effects of the Chapter 11 Cases on the Company and its subsidiaries and on t h e in t erests o f v ario us
constituents, including holders of our common stock and debt instruments;
the length of time that we will operate under Chapter 11 protection and the continued availability of
operating capital during the pendency of the proceedings;
the actions and decisions of creditors, regulators and other third parties that have an interest in the Chap ter
11 Cases;
increased advisory costs to execute the Plan or any other plan of reorganization and increased
administrative and legal costs related to the Chapter 11 Cases and other litigation and t he in h eren t risk s
involved in a bankruptcy process;
restrictions imposed on us by the Bankruptcy Court;
the impact of the delisting of our common stock by the New York Stock Exchange o n t he liq u id it y a nd
market price of our common stock;
• market conditions and the effect of such conditions on our future results of operations;
•
•
sources and uses of and requirements for financial resources and sources of liquidity;
customer spending programs;
• business plans or financial condition of our customers, including with respect to or as a result of the
COVID-19 pandemic;
•
•
contractual obligations and future contract negotiations;
interest rate and foreign exchange risk;
• operations outside the United States;
47
• business strategy;
• growth opportunities;
•
•
•
•
competitive position including, without limitation, competitive rigs entering the market;
expected financial position;
cash flows and contract backlog;
future amounts payable by a customer in the form of a guarantee of gross margin to b e earned o n f ut ure
contracts or by direct payment, pursuant to terms of an existing contract, including the timing and rev enu e
associated therewith;
•
idling drilling rigs or reactivating stacked rigs;
• outcomes of litigation and legal proceedings;
• declaration and payment of dividends;
•
financing plans;
• market outlook;
•
•
•
commodity prices;
tax planning and effects of the Tax Cuts and Jobs Act and the CARES Act;
changes in tax laws and policies or adverse outcomes resulting from examination of our tax returns;
• debt levels and the impact of changes in the credit markets and credit ratings for us and our debt;
• budgets for capital and other expenditures;
• duration and impacts of the COVID-19 pandemic, lockdowns, re-openings and any other rela ted actio ns
taken by businesses and governments that may impact our business, operations, supply chain and
personnel, financial condition, results of operations, cash flows and liquidity;
•
expectations regarding our plans and strategies, including plans, effects and other matters rela tin g t o t h e
COVID-19 pandemic;
•
timing and duration of required regulatory inspections for our drilling rigs and other planned downtime;
• process and timing for acquiring regulatory permits and approvals for our drilling operations;
•
timing and cost of completion of capital projects;
• delivery dates and drilling contracts related to capital projects;
• plans and objectives of management;
•
•
•
scrapping retired rigs;
asset impairments and impairment evaluations;
assets held for sale;
• our internal controls and internal control over financial reporting;
• performance of contracts;
•
•
compliance with applicable laws; and
availability, limits and adequacy of insurance or indemnification.
48
These types of statements are based on current expectations about future events and inherently are subject t o a
variety of assumptions, risks and uncertainties, many of which are beyond our control, that could cause actual results
to differ materially from those expected, projected or expressed in forward-looking st at ements. Th ese risk s a nd
uncertainties include, among others, the following:
•
those described under “Risk Factors” in Item 1A;
• our ability to continue as a going concern;
• our ability to consummate the Plan and the restructuring and new exit financing facilities contemplated b y
the PSA;
•
•
•
risks that our assumptions and analyses in the Plan or any other plan of reorganization are incorrect;
risks associated with third-party motions or objections in the Chapter 11 Cases, which may int erfere wit h
our ability to confirm and consummate a plan of reorganization and restructuring generally;
the potential adverse effects of the Chapter 11 Cases on our liquidity, results of operations, access to capital
resources or business prospects;
• our ability to obtain the Bankruptcy Court’s approval with respect to the Plan and other motions or requests
made to the Bankruptcy Court in the Chapter 11 Cases;
•
the impact of the COVID-19 outbreak or future epidemics on our business, in clu din g t h e p ot en tial f o r
worker absenteeism, facility closures, work slowdowns or stoppages, supply chain disruptions, a ddit io nal
costs and liabilities, delays, our ability to recover costs under contracts, insurance challenges, and potential
impacts on access to capital, markets and the fair value of our assets;
• general economic and business conditions and trends, including recessions and adverse changes in the level
of international trade activity;
•
the continuing protracted downturn in our industry and the expected continuation thereof;
• worldwide supply and demand for oil and natural gas;
•
changes in foreign and domestic oil and gas exploration, development and production activity;
• oil and natural gas price fluctuations and related market expectations;
•
the ability of OPEC+ to set and maintain production levels and pricing, and the level of production in n o n -
OPEC+ countries;
• policies of various governments regarding exploration and development of oil and gas reserves;
•
•
•
•
•
inability to obtain contracts for our rigs that do not have contracts;
the inability to reactivate cold-stacked rigs;
the cancellation or renegotiation of contracts included in our reported contract backlog;
advances in exploration and development technology;
the worldwide political and military environment, including, for example, in oil-p ro d ucin g regio n s a nd
locations where our rigs are operating or are in shipyards;
•
casualty losses;
• operating hazards inherent in drilling for oil and gas offshore;
•
the risk of physical damage to rigs and equipment caused by named windstorms in the U.S. Gulf of
Mexico;
•
industry fleet capacity;
• market conditions in the offshore contract drilling industry, including, without lim it a tio n, d ayrates a nd
utilization levels;
competition;
changes in foreign, political, social and economic conditions;
•
•
49
•
•
•
•
•
•
•
•
•
•
risks of international operations, compliance with foreign laws and taxation policies and seizure,
expropriation, nationalization, deprivation, malicious damage or other loss of possession or use of
equipment and assets;
risks of potential contractual liabilities pursuant to our various drilling contracts in effect from time to time;
customer or supplier bankruptcy, liquidation or other financial difficulties;
the ability of customers and suppliers to meet their obligations to us and our subsidiaries;
collection of receivables;
foreign exchange and currency fluctuations and regulations, and t h e in a bilit y t o repat riat e in come o r
capital;
risks of war, military operations, other armed hostilities, sabotage, piracy, cyber-attack, terrorist a cts a nd
embargoes;
changes in offshore drilling technology, which could require significant capital expendit ures in o rd er t o
maintain competitiveness;
reallocation of drilling budgets away from offshore drilling in favor of other priorities such as shale or other
land-based projects;
regulatory initiatives and compliance with governmental regulations including, without limitation,
regulations pertaining to climate change, greenhouse gases, carbon emissions or energy use;
•
compliance with and liability under environmental laws and regulations;
• uncertainties surrounding deepwater permitting and exploration and development activities;
• potential changes in accounting policies by the Financial Accounting Standards Board, SEC, or regula t ory
agencies for our industry which may cause us to revise our financial accounting and/or disclo su res in t h e
future, and which may change the way analysts measure our business or financial performance;
• development and increasing adoption of alternative fuels;
•
•
•
•
customer preferences;
risks of litigation, tax audits and contingencies and the impact of compliance with judicial rulings and j u ry
verdicts;
cost, availability, limits and adequacy of insurance;
invalidity of assumptions used in the design of our controls and pro cedu res a nd t he risk t h at material
weaknesses may arise in the future;
• business opportunities that may be presented to and pursued or rejected by us;
•
•
•
the results of financing efforts;
adequacy and availability of our sources of liquidity;
risks resulting from our indebtedness;
• public health threats;
• negative publicity; and
•
impairments of assets.
The risks and uncertainties included here are not exhaustive. Other sections of this report and our other f ilin gs
with the SEC include additional factors that could adversely affect our business, results of operations and f in ancial
performance. Given these risks and uncertainties, investors should not place undue relia nce o n f o rward -lo okin g
statements. Forward-looking statements included in this report speak only as of the date of this report. We expressly
disclaim any obligation or undertaking to release publicly any updates or revisions to any forward-looking statement
to reflect any change in our expectations or beliefs with regard to the statement or any change in events, condit io ns
or circumstances on which any forward-looking statement is based. In addition, in certain places in this rep o rt , we
50
refer to reports of third parties that purport to describe trends or developments in energy production or drillin g a n d
exploration activity. While we believe that each of these reports is reliable, we have not independently verif ied t h e
information included in such reports. We specifically disclaim any responsibility for the accuracy and completeness
of such information and undertake no obligation to update such information.
New Accounting Pronouncements
For a discussion of recent accounting pronouncements that have had or are expected to have a n ef fect o n o u r
consolidated financial statements, see Note 1 “General Information – Changes in Accoun ti ng Pri nci ples ” t o o u r
Consolidated Financial Statements in Item 8 of this report.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
The information included in this Item 7A is considered to constitute “forward -looking statements” for purposes
of the statutory safe harbor provided in Section 27A of the Securities Act and Section 21E of the Exchange Act. See
“Management’s Discussion and Analysis of Financial Condition and Results of Operat io ns – Fo rward -Lo okin g
Statements” in Item 7 of this report.
Our measure of market risk exposure represents an estimate of the change in fair v alue of our financial
instruments. Market risk exposure is presented for each class of financial instrument held b y u s a t December 3 1 ,
2020 and 2019, assuming immediate adverse market movements of the magnitude described below. We believe that
the various rates of adverse market movements represent a measure o f ex po sure t o lo ss u n d er h y po thetically
assumed adverse conditions. The estimated market risk exposure represents the hypothetical loss to future earnin gs
and does not represent the maximum possible loss or any expected actual loss, ev en u nd er a dverse con dit io ns,
because actual adverse fluctuations would likely differ. In addition, since our investment p o rt folio is su b j ect t o
change based on our portfolio management strategy as well as in response to changes in the market, these estimat es
are not necessarily indicative of the actual results that may occur.
Exposure to market risk is managed and monitored by our senior management. Senior managemen t a ppro ves
the overall investment strategy that we employ and has responsibility to ensure that the inv est ment p o sit io ns a re
consistent with that strategy and the level of risk acceptable to us. We may manage risk by buying or selling
instruments or entering into offsetting positions.
Interest Rate Risk. We have exposure to interest rate risk on our debt instruments arising from chan ges in t h e
level or volatility of interest rates. We monitor our sensitivity to interest rate risk by evaluatin g t h e change in t h e
value of our financial assets and liabilities due to fluctuations in interest rates. The evaluation provides the
sensitivity of the market value of our financial instruments to selected changes in market rates and prices wh ich we
believe are reasonably possible over a one-year period. This sensitivity analysis estimates the change in the mark et
value of our interest sensitive liabilities that were held on December 31, 2 0 20 an d 2 0 19, d u e t o in st antaneous
parallel shifts in the yield curve of 100 basis points, with all other variables held constant.
Our existing Senior Notes have been issued at fixed rates, and as such, interest expense would not be impacted
by interest rate shifts. However, changes in market interest rates are reflected in t h e f air v alu e o f t h e d eb t. Th e
impact of a 100-basis point increase in interest rates on fixed rate debt would result in a decrease in market value o f
$5.1 million and $89.7 million as of December 31, 2020 and 2019, respectively. A 100-basis point decrease wo uld
result in an increase in market value of $5.4 million and $102.0 million as of December 31, 2020 and 2019,
respectively.
The interest rates on certain types of assets and liabilities may fluctuate in advance of changes in market interest
rates, while interest rates on other types may lag behind changes in market rates. Accordingly, the analysis may n ot
be indicative of, is not intended to provide, and does not provide a precise forecast of the effect of changes in market
interest rates on our earnings or stockholders’ equity. Further, the computations do not contemplate any act ion s we
could undertake in response to changes in interest rates.
51
We are also subject to risk exposure related to the variable in t erest rates charged o n o u r R evo lvin g C redit
Agreement, which are calculated on a base rate as defined therein .
52
Item 8. Financial Statements and Supplementary Data.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the stockholders and the Board of Directors of Diamond Offshore Drilling, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Diamond Offshore Drilling, I n c. (“Deb t o r -in -
Possession”) and subsidiaries (the "Company") as of December 31, 2020 and 2019, the related consolidated
statements of operations, comprehensive income or loss, stockholders’ equity, and cash flows, for each of the t h ree
years in the period ended December 31, 2020, and the related notes (collectively referred to as the "financial
statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position o f
the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each o f t he
three years in the period ended December 31, 2020, in conformity with accounting principles generally accep ted in
the United States of America.
Going Concern
The accompanying financial statements have been prepared assuming that the Company will co n t in ue as a go in g
concern. As discussed in Note 2 to the financial statements, the Company has projected that it will not have
sufficient cash on hand or available liquidity to repay its outstanding debt as a result of the voluntary p etit io ns f or
relief filed under Chapter 11 of the U.S. Bankruptcy Code, which raises substantial doubt about its ability to
continue as a going concern. Management's plans in regard to these matters a re also d escrib ed in No t e 2 . Th e
financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Bankruptcy Proceedings
As discussed in Note 2 to the financial statements, the Company has filed for reorganization under Chapter 11 of the
U.S. Bankruptcy Code. The accompanying financial statements do not purport to reflect or provide for the
consequences of the bankruptcy proceedings. In particular, such financial statements do not purport to show (1) as to
assets, their realizable value on a liquidation basis or their availability to satisfy liabilit ies; (2 ) a s t o p rep etit io n
liabilities, the settlement amounts for allowed claims, or the status and priority thereof; (3) as to shareholder
accounts, the effect of any changes that may be made in the capitalization of the Company; or (4) as to o p eratio ns,
the effect of any changes that may be made in its business.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express a n
opinion on the Company's financial statements based on our audits. We are a public accounting firm registered wit h
the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with
respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulatio ns
of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether t h e f in ancial st a tement s are f ree o f m aterial
misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform,
an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an
understanding of internal control over financial reporting but not for the purpose of expressing a n o p in ion o n t h e
effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
53
Our audits included performing procedures to assess the risks of material misstatement of the financial st at emen ts,
whether due to error or fraud, and performing procedures that respond to those risks. Su ch p ro cedu res in clu d ed
examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Ou r a u dit s
also included evaluating the accounting principles used and significant estimates made by management, a s well a s
evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis
for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current-period aud it o f t h e f inancial
statements that were communicated or required to be communicated to the audit committee an d t hat (1 ) rela t e t o
accounts or disclosures that are material to the financial statements and (2) involved our esp eci ally challen gin g,
subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion
on the financial statements, taken as a whole, and we are not, by communicating the critical audit m att ers b elo w,
providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Impairment of Long-Lived Assets – Refer to Notes 1 and 4 to the financial statements.
Critical Audit Matter Description
The evaluation of drilling equipment, specifically drilling rigs, for impairment occurs whenever changes in
circumstances indicate that the carrying amount of an asset may not be recoverable, such as cold stacking a d rillin g
rig, the expectation of cold stacking a drilling rig in the near term, contracted backlog of less than one year, a
decision to retire or scrap a drilling rig, or excess spending over budget on a newbuild, construction project or major
drilling rig upgrade.
When the Company determines that the carrying value of a drilling rig may not be reco verable, t h ey p repare an
undiscounted probability-weighted cash flow analysis to determine if there is a potential impairment. If the carrying
value of a drilling rig is not recoverable, it would be impaired to fair value using a discounted probability-weigh ted
cash flow analysis. These analyses utilize certain assumptions for each drilling rig under evaluatio n a nd co nsid er
multiple probability-weighted utilization and dayrate scenarios. Th e C ompany ’s d evelo pment o f t h e d ay rat e
assumption involves judgments relative to the current and expected market for the drilling rigs and expectatio ns o f
future oil and gas prices. The drilling and other property and equipment balance was $4.1 billion as of December 31,
2020, and impairment expense of $842.0 million was recorded for the year ended December 31, 2020.
We identified impairment of drilling rigs as a critical audit matter because of the significan t j u dgment s made b y
management to identify indicators of impairment and to prepare probability-weighted cash flow analyses to
determine if potential impairments exist and measure fair value. This required a high degree of au dit or j u dgment ,
including the involvement of fair value specialists, and increased extent of effort related to evaluating indicat ors o f
impairment and dayrate used in the undiscounted and discounted probability-weighted cash flow analyses.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to (i) the identification of indicators of impairm ent an d (ii) t h e ev alu atio n o f t he
Company’s undiscounted and discounted probability-weighted cash flow analysis for those drilling rigs with factors
that indicated potential impairment included the following, among others:
• We evaluated the Company’s identification of impairment indicators by:
o Corroborating information used in the identification of impairment indicators through independent
inquiries of marketing and operations personnel and by performing an independent assessmen t o f
potential indicators of impairment utilizing the individual drilling rig history, asset class h ist o ry
for dayrates, backlog and potential drilling rig opportunities.
o Considering industry and analysts reports and the impact of macroeconomic factors, such as future
oil and gas prices, on the Company’s process for identifying indicators of impairment.
54
o Comparing the timing of impairments recorded by the Company with the timing of im pairm ent s
recorded by the Company’s peers.
• With the assistance of our fair value specialists, we evaluated the Company’s undiscounted and discounted
probability-weighted cash flow analysis for those drilling rigs with factors that had indicators of p o tential
impairment by:
o Evaluating the reasonableness of the dayrate assumptions utilized in the Company’s pro babilit y -
weighted undiscounted and discounted cash flow analyses by evaluat ing p o t en tial d rillin g rig
opportunities and considering industry reports and data.
o Comparing the assumptions used in the Company’s previous pro bab ilit y -weight ed cash f lo w
analyses to the assumptions used in the current probability-weighted cash flow analyses to a ssess
for management bias.
Income Taxes – Refer to Notes 1 and 15 to the financial statements.
Critical Audit Matter Description
The Company accounts for income taxes in accordance with accounting standards that require the recognition of the
amount of taxes payable or refundable for the current year and an asset and liability approach in reco gn izin g t h e
amount of deferred tax liabilities and assets for the future tax consequences of ev ents t h at h ave b een curren tly
recognized in the financial statements or tax returns. In each of the tax jurisdictions, t he C ompan y recogn ized a
current tax liability or asset for the estimated taxes payable or refundable on tax returns for the current y ear a nd a
deferred tax asset or liability for the estimated future tax effects attributable to temporary differences and
carryforwards. The deferred tax liability balance was $28.3 million as of December 31, 2020 and income tax benefit
recorded in 2020 was $21.2 million.
In several of the jurisdictions in which the Company operates, certain wholly -o wned su bsid iaries en tered in t o
agreements with other wholly-owned subsidiaries to provide specialized service and eq uip ment . Th e C ompany
applied transfer pricing methodologies to determine the amount to be charged for providing the services and
equipment and utilized outside consultants to assist in the development of such transfer pricing methodologies. Each
jurisdiction enacts laws, which, in many cases, allows for alternative transfer pricing methodo logies, wh ich m ay
differ from the Company’s selected methodologies. Alternative transfer pricing methodologies, if a p p lied, co u ld
result in different chargeable amounts.
Given the multiple jurisdictions in which the Company files tax returns and the comp lexit y o f t h e t ax la ws and
regulations, and transfer pricing methodologies applied to wholly -owned subsidiary transactions, auditing
management’s estimates of income taxes in foreign jurisdictions required a high degree of auditor judgment and an
increased extent of effort, including the use of our tax specialists and audit teams in the local jurisdiction
knowledgeable of the tax laws of the applicable country.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the Company’s application of transfer pricing methodologies, included the
following, among others:
• We evaluated the appropriateness and consistency of management’s methods and assumptions used in t h e
application of its transfer pricing methodology.
• We involved transfer pricing specialists to evaluate the reasonableness of transfer pricing m et hod olo gies
utilized by the Company.
• We tested the accuracy of transfer prices by recalculating the prices in accordance with the chosen
methodology.
55
• With the assistance of our income tax specialists and audit teams in the local jurisdiction knowledgeable o f
the tax laws of the applicable country, we evaluated management’s assertions with respect to the
Company’s entitlement to the economic benefits associated with t h e t ax p o sit ion s resu ltin g f ro m t h e
application of transfer pricing methodology.
/s/ DELOITTE & TOUCHE LLP
Houston, Texas
February 10, 2021
We have served as the Company’s auditor since 1989.
56
DIAMOND OFFSHORE DRILLING, INC.
AND SUBSIDIARIES (DEBTOR-IN-POSSESSION)
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
ASSETS
Current assets:
Cash and cash equivalents
Restricted cash
Accounts receivable
Less: allowance for credit losses
Accounts receivable, net
Prepaid expenses and other current assets
Assets held for sale
Total current assets
Drilling and other property and equipment, net of accumulated
depreciation
Other assets
Total assets
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable
Accrued liabilities
Taxes payable
Total current liabilities
Long-term debt
Deferred tax liability
Other liabilities
Commitments and contingencies (Note 11)
Total liabilities not subject to compromise
Liabilities subject to compromise
Stockholders’ equity:
Preferred stock (par value $0.01, 25,000,000 shares authorized,
none issued and outstanding)
Common stock (par value $0.01, 500,000,000 shares authorized;
145,263,865 shares issued and 138,054,311 shares outstanding
at December 31, 2020; 144,781,766 shares issued and 137,703,910
shares outstanding at December 31, 2019)
Additional paid-in capital
Retained earnings
Accumulated other comprehensive loss
Treasury stock, at cost (7,209,554 and 7,077,856 shares of common
stock at December 31, 2020 and 2019, respectively)
Total stockholders’ equity
Total liabilities and stockholders’ equity
$
$
$
December 31,
2020
2019
405,869 $
24,511
136,222
(5,562 )
130,660
62,275
2,000
625,315
156,281
—
256,315
(5,459 )
250,856
68,658
1,000
476,795
4,122,809
200,329
4,948,453 $
5,152,828
204,421
5,834,044
33,437 $
140,788
27,214
201,439
—
28,338
117,305
—
347,082
2,618,805
68,586
210,780
23,228
302,594
1,975,741
47,528
275,971
—
2,601,834
—
—
—
1,453
2,029,979
157,297
—
1,448
2,024,347
1,412,201
(18 )
(206,163 )
1,982,566
4,948,453 $
(205,768 )
3,232,210
5,834,044
$
The accompanying notes are an integral part of the consolidated financial statements.
57
DIAMOND OFFSHORE DRILLING, INC.
AND SUBSIDIARIES (DEBTOR-IN-POSSESSION)
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
Revenues:
Contract drilling
Revenues related to reimbursable expenses
Total revenues
Operating expenses:
Contract drilling, excluding depreciation
Reimbursable expenses
Depreciation
General and administrative
Impairment of assets
Restructuring and separation costs
(Gain) loss on disposition of assets
Total operating expenses
Operating loss
Other income (expense):
Year Ended December 31,
2020
2019
2018
$
692,753 $
40,934
733,687
934,934 $ 1,059,973
23,242
980,644 1,083,215
45,710
618,553
38,900
320,085
56,925
842,016
17,724
(7,375 )
722,834
22,917
331,789
85,351
27,225
5,041
241
1,886,828 1,262,974 1,195,398
(112,183 )
(1,153,141 )
793,412
45,016
355,596
67,878
—
—
1,072
(282,330 )
484
6,382
8,477
Interest income
Interest expense, net of amounts capitalized (excludes $98,027
of contractual interest expense on debt subject to compromise
for the year ended December 31, 2020)
Foreign currency transaction loss
Reorganization items, net
Other, net
Loss before income tax benefit
Income tax benefit
Net loss
Loss per share, Basic and Diluted
Weighted-average shares outstanding, Basic and Diluted
(42,585 )
(4,498 )
(76,910 )
560
(1,276,090 )
21,186
$ (1,254,904 ) $
(9.09 ) $
$
137,996
(122,832 )
(3,936 )
—
702
(402,014 )
44,800
(357,214 ) $
(2.60 ) $
137,652
(123,240 )
(379 )
—
700
(226,625 )
46,353
(180,272 )
(1.31 )
137,399
The accompanying notes are an integral part of the consolidated financial statements.
58
DIAMOND OFFSHORE DRILLING, INC.
AND SUBSIDIARIES (DEBTOR-IN-POSSESSION)
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME OR LOSS
(In thousands)
Net loss
Other comprehensive gains (losses), net of tax:
Derivative financial instruments:
Reclassification adjustment for loss (gain) included in net
loss
Investments in marketable securities:
Unrealized holding gain on investments
Reclassification adjustment for gain included in net loss
Total other comprehensive gain (loss)
Comprehensive loss
2020
$ (1,254,904 ) $
Year Ended December 31,
2019
(357,214 ) $
2018
(180,272 )
18
(7 )
(6 )
—
—
18
$ (1,254,886 ) $
23
(55 )
(39 )
(357,253 ) $
69
(37 )
26
(180,246 )
The accompanying notes are an integral part of the consolidated financial statements.
59
DIAMOND OFFSHORE DRILLING, INC.
AND SUBSIDIARIES (DEBTOR-IN-POSSESSION)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(In thousands, except number of shares)
Common Stock
Additional
Paid-In
Amount Capital
Shares
144,085,292 $
Accumulated
Other
Retained
Earnings Gains (Losses) Shares
Comprehensive Treasury Stock
Amount Equity
Total
Stockholders’
1,441 $ 2,011,397 $ 1,964,497 $
(5 ) 6,857,510 $ (203,069 ) $ 3,774,261
—
—
—
(14,812 )
—
—
—
(14,812 )
144,085,292 $
—
1,441 $ 2,011,397 $ 1,949,685 $
— (180,272 )
—
(5 ) 6,857,510 $ (203,069 ) $ 3,759,449
(180,272 )
—
—
—
—
3,773
—
—
—
—
294,597
3
6,746
—
—
—
2
—
—
—
—
—
—
—
—
—
2
—
— 87,799
(1,301 )
5,448
(6 )
—
—
(6 )
—
144,383,662 $
—
—
—
—
1,444 $ 2,018,143 $ 1,769,415 $
— (357,214 )
—
—
32
32
21 6,945,309 $ (204,370 ) $ 3,584,653
(357,214 )
—
—
—
—
398,104
4
6,204
—
—
—
—
—
— 132,547
(1,398 )
4,810
(7 )
—
—
(7 )
—
144,781,766 $
—
—
—
—
1,448 $ 2,024,347 $ 1,412,201 $
— (1,254,904 )
—
—
(32 )
(32 )
(18 ) 7,077,856 $ (205,768 ) $ 3,232,210
— (1,254,904 )
—
—
—
482,099
5
5,632
—
— 131,698
(395 )
5,242
—
145,263,865 $
—
—
—
1,453 $ 2,029,979 $ 157,297 $
18
18
— 7,209,554 $ (206,163 ) $ 1,982,566
—
—
December 31, 2017
Impact of change in
accounting principle
Adjusted balance at
January 1, 2018
Net loss
Anti-dilution
adjustment
Stock options exercised
Stock-based
compensation, net
of tax
Net loss on derivative
financial instruments
Net gain on
investments
December 31, 2018
Net loss
Stock-based
compensation, net
of tax
Net loss on derivative
financial instruments
Net loss on
investments
December 31, 2019
Net loss
Stock-based
compensation, net
of tax
Net gain on derivative
financial instruments
December 31, 2020
The accompanying notes are an integral part of the consolidated financial statements.
60
DIAMOND OFFSHORE DRILLING, INC.
AND SUBSIDIARIES (DEBTOR-IN-POSSESSION)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Operating activities:
Net loss
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation
Loss on impairment of assets
Reorganization items, net
(Gain) loss on disposition of assets
Deferred ta x provision
Stock-based compensation expense
Contract liabilities, net
Contract assets, net
Deferred contract costs, net
Long-term employee remuneration programs
Noncurrent collateral deposits
Other assets, noncurrent
Other liabilities, noncurrent
Other
Changes in operating assets and liabilities:
Accounts receivable
Prepaid expenses and other current assets
Accounts payable and accrued liabilities
Taxes payable
Net cash provided by operating activities
Investing activities:
Capital expenditures
Proceeds from disposition of assets, net of disposal costs
Proceeds from sale of foreign bonds
Proceeds from sale and maturities of marketable securities
Purchase of marketable securities
Net cash used in investing activities
Year Ended December 31,
2020
2019
2018
$ (1,254,904 ) $
(357,214 ) $
(180,272 )
320,085
842,016
22,106
(7,375 )
(19,228 )
5,637
8,823
3,444
1,960
(4,256 )
(18,262 )
(7,950 )
(2,279 )
3,321
114,329
6,334
(14,143 )
8,721
8,379
355,596
—
—
1,072
(56,908 )
6,208
27,578
2,625
59,141
3,169
—
52
6,514
2,380
(37,832 )
(1,170 )
3,897
(6,019 )
9,089
331,789
27,225
—
241
(75,993 )
6,749
183
(6,221 )
22,765
547
—
(1,307 )
(3,217 )
2,491
87,970
6,211
(7,587 )
20,484
232,058
(189,528 )
13,333
5,915
(222,406 )
(326,090 )
70,067
16,217
—
—
— 2,300,000 1,600,000
— (1,996,996 ) (1,895,997 )
(448,336 )
(6,869 )
(170,280 )
Financing activities:
Borrowings under credit facility
Debt issuance costs and arrangement fees
Other
Net cash provided by (used in) financing activities
Net change in cash, cash equivalents and restricted cash
Cash, cash equivalents and restricted cash, beginning of year
$
Cash, cash equivalents and restricted cash, end of year
436,000
—
—
436,000
274,099
156,281
430,380 $
—
(12 )
—
(12 )
2,208
154,073
156,281 $
—
(5,651 )
(35 )
(5,686 )
(221,964 )
376,037
154,073
The accompanying notes are an integral part of the consolidated financial statements.
61
DIAMOND OFFSHORE DRILLING, INC.
AND SUBSIDIARIES (DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. General Information
Diamond Offshore Drilling, Inc. provides contract drilling services to the energy industry around the globe with
a fleet of 13 offshore drilling rigs, consisting of four drillships and nine semisubmersible rigs, includin g t wo co ld -
stacked semisubmersible rigs. Our current fleet excludes two previously impaired rigs, which we exp ect t o sell in
the first half of 2021. See Note 8.
Unless the context otherwise requires, references in these Notes to “Diamond Offshore,” “we,” “u s” o r “o ur”
mean Diamond Offshore Drilling, Inc. and our consolidated subsidiaries. We were in co rp orated in Dela ware in
1989.
As of February 4, 2021, Loews Corporation, or Loews, owned approximately 53% of the outstanding shares o f
our common stock.
Principles of Consolidation
Our consolidated financial statements include the accounts of Diamond Offshore Drilling, Inc. and our wholly -
owned subsidiaries after elimination of intercompany transactions and balances.
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with accounting principles gen erally a ccept ed in t h e
United States (or U.S.), or GAAP, requires management to make estimates and assumptions that affect the report ed
amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amount of revenues and expenses during the reporting period. Actual results could differ
from those estimated.
Changes in Accounting Principles
Credit Losses. In June 2016, the Financial Accounting Standards Board, or FASB, issued Accounting Standards
Update, or ASU, No. 2016-13 Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on
Financial Instruments, or ASU 2016-13. ASU 2016-13 replaced the incurred loss impairment metho dolo gy u nder
previous GAAP and requires entities to measure credit losses of certain financial assets, including trade receivables,
utilizing a methodology that reflects expected credit losses and requires consideration of a broader range of
reasonable and supportable information to inform credit loss estimates.
We adopted ASU 2016-13 and its related amendments, or collectively, CECL, effective Jan uary 1 , 2 0 20, b y
recognizing a cumulative-effect adjustment, which was not material, to our Consolid at ed Fin a ncial St a t emen ts .
CECL has been applied prospectively and therefore prior periods have not been adjusted. Prior to the a do ptio n o f
ASU 2016-13, we have historically recorded a provision for bad debts on a case -by -case b asis wh en facts a nd
circumstances indicated that a customer receivable may not be collectible. In establishing these reserves, we
considered historical and other factors that predicted collectability of such customer receivables, in clu din g writ e -
offs, recoveries and the monitoring of credit quality. Such provision was reported a s a compo nen t o f “ C ont ract
drilling, excluding depreciation” in our Consolidated Statements of Operations. See Notes 5 and 8.
Leases. In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), or ASU 2 0 1 6 -0 2, wh ich
(i) requires lessees to recognize a right of use asset and a lease liability on the balance sheet for most leases,
(ii) updates previous accounting standards for lessors to align certain req uirements with the updates to lessee
accounting standards and the revenue recognition accounting standards and (iii) requires en h anced d isclo su re o f
qualitative and quantitative information about an entity's leasing arrangements.
62
We adopted ASU 2016-02 effective January 1, 2019 using an optional t ra nsit io n m et hod req uirin g lea ses
existing at, or entered into after, January 1, 2019 to be recognized and measured under the new accounting
standard. Prior period amounts have not been adjusted and continue to be reflected in accordance with our historical
accounting for leases. In our adoption of ASU 2016-02, we also utilized a transition practical ex pedient p ackage
whereby we did not reassess (i) whether any of our expired or existing contracts contain a lease, (ii) the
classification for any expired or existing leases and (iii) initial direct costs for any existing leases. The a dopt io n o f
this standard resulted in the recording of operating lease assets and offsetting operating lease liabilit ies o f $ 1 46 .8
million as of January 1, 2019, with no related impact on our annual Consolidated Statement of Stockholders’ Equity.
See Note 12.
Upon adoption of ASU 2016-02, we concluded that our drilling contracts contain a lease component for the use
of our drilling rigs based on the updated definition of a lease. However, ASU 2 0 1 6 -02 p rovid es f or a p ractical
expedient for lessors whereby, under certain circumstances, the lessor may combine the lease and non -lease
components and account for the combined component in accordanc e with the accounting treatment for the
predominant component. We have determined that our current drilling contracts qualify for this practical exp edien t
and have combined the lease and service components of our standard drilling contracts. We continue to account f or
the combined component under ASU No. 2014-09, Revenue from Contracts with Customers (To pi c 6 0 6) a nd it s
related amendments.
Revenue Recognition. In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with
Customers (Topic 606), or ASU 2014-09, which superseded the revenue recognition requirement s in ASU To p ic
605, Revenue Recognition. Under the new guidance, revenue is recognized when a cu stomer o b tains co nt rol o f
promised goods or services and in an amount that reflects the consideration the entity expects to receive in exchange
for those goods or services.
We adopted ASU 2014-09 and its related amendments, or collectively Topic 606, effectiv e January 1 , 2 0 18
using the modified retrospective implementation method. Accordingly, we h a ve a pplied t h e f iv e -step m et hod
outlined in Topic 606 for determining when and how revenue is recognized to all contracts that were not complet ed
as of the date of adoption. Revenues for reporting periods beginning after January 1, 2018 are presented under Topic
606, while prior period amounts have not been adjusted and continue to be reported un der t h e p revio us rev enue
recognition guidance. For contracts that were modified before the effective date, we have considered the
modification guidance within the new standard and determined that the revenue recognized and contract b alances
recorded prior to adoption for such contracts were not impacted. While Topic 606 requires additional disclo su re o f
the nature, amount, timing and uncertainty of revenue and cash flows arising from cont racts wit h cu st omers, it s
adoption has not had a material impact on the measurement or recognition of our revenues.
Our adoption of ASU 2014-09 represents a change in accounting principle and therefore, we have recorded t h e
cumulative effect of adopting Topic 606 as an increase to opening retained earnin gs o n Jan uary 1 , 2 0 18 . Th is
adjustment represents an accrual for the earned portion of demobilization rev enue ex pect ed t o b e recei v ed f or
contracts not completed as of December 31, 2017, which was not recordable under previous rev enue recogn it ion
guidance until completion of the demobilization activities. See Note 3.
Cash and Cash Equivalents
We consider short-term, highly liquid investments that have an original maturity of three m ont hs o r less a n d
deposits in money market mutual funds that are readily convertible into cash to be cash equivalents.
The effect of exchange rate changes on cash balances held in foreign currencies was not material for t h e y ears
ended December 31, 2020, 2019 and 2018.
Drilling and Other Property and Equipment
We carry our drilling and other property and equipment at cost, less accumulated depreciation. Maintenance and
routine repairs are charged to income currently while replacements and betterments that u p grade o r in crease t h e
functionality of our existing equipment and that significantly extend the useful life of an existing asset are
capitalized. Significant judgments, assumptions and estimates may be required in determining whether or n o t su ch
63
replacements and betterments meet the criteria for capitalization and in determining useful lives and salvage v alues
of such assets. Changes in these judgments, assumptions and estimates could produce results that differ fro m t h ose
reported. During the years ended December 31, 2020 and 2019, we capitalized $137.4 million and $343.8 m illio n ,
respectively, in replacements and betterments of our drilling fleet.
Costs incurred for major rig upgrades and/or the construction of rigs are accumulated in construction wo rk -in -
progress, with no depreciation recorded on the additions, until the month the upgrade or newbuild is completed and
the rig is placed in service. Upon retirement or sale of a rig, the cost and relat ed accumulated d eprecia tio n a re
removed from the respective accounts and any gains or losses are report ed in o u r C o nsolid at ed St atement s o f
Operations as “(Gain) loss on disposition of assets.” Depreciation is recognized up to applicable salvage v alu es b y
applying the straight-line method over the remaining estimated useful lives from t h e y ear t h e a sset is p la ced in
service. Drilling rigs and equipment are depreciated over their estimated useful lives ranging fro m 3 to 30 years.
Impairment of Long-Lived Assets
We evaluate our property and equipment for impairment whenever changes in circumstances indicat e t hat t h e
carrying amount of an asset may not be recoverable (such as, but not limited to, cold stacking a rig, the expectatio n
of cold stacking a rig in the near term, contracted backlog of less than one year for a rig, a decision to retire or scra p
a rig, or excess spending over budget on a newbuild, construction project, reactivation or major rig u p gra de). We
utilize an undiscounted probability-weighted cash flow analysis in testing an asset for potential im p airment . Ou r
assumptions and estimates underlying this analysis include the following:
• dayrate by rig;
• utilization rate by rig if active, warm-stacked or cold-stacked (expressed as the actual percentage o f t im e
per year that the rig would be used at certain dayrates);
•
•
•
•
•
the per day operating cost for each rig if active, warm-stacked or cold-stacked;
the estimated annual cost for rig replacements and/or enhancement programs;
the estimated maintenance, inspection or other reactivation costs associated with a rig returning to work;
salvage value for each rig; and
estimated proceeds that may be received on disposition of each rig.
Based on these assumptions, we develop a matrix for each rig under evaluation using multiple
utilization/dayrate scenarios, to each of which we have assigned a probability of occurrence. We arrive at a projected
probability-weighted cash flow for each rig based on the respective matrix and compare such amount to the carrying
value of the asset to assess recoverability.
The underlying assumptions and assigned probabilities of occurrence for utilization and dayrate scenarios a re
developed using a methodology that examines historical data for each rig, which considers the rig’s age, rated water
depth and other attributes and then assesses its future marketability in light of the cu rren t a nd p roj ected m arket
environment at the time of assessment. Other assumptions, such as operating, maintenance, inspection and
reactivation costs, are estimated using historical data adjusted for known developments, cost projections for re-entry
of rigs into the market and future events that are anticipated by management at the time of the assessment.
Management’s assumptions are necessarily subjective and are an inherent part of our asset impairment
evaluation, and the use of different assumptions could produce results that differ from those reported . Our
methodology generally involves the use of significant unobservable inputs, representative of a Level 3 f air v a lu e
measurement, which may include assumptions related to future dayrate revenue, costs and rig u t iliza t io n , q uo tes
from rig brokers, the long-term future performance of our rigs and future market conditions. Management’s
assumptions involve uncertainties about future demand for our services, dayrates, expenses and other future events,
and management’s expectations may not be indicative of future outcomes. Significant unanticipated changes to these
assumptions could materially alter our analysis in testing an asset for potential impairment. For example, changes in
market conditions that exist at the measurement date or that are projected by management co uld af fect o u r k ey
assumptions. Other events or circumstances that could affect our assumptions may include, but are not limited t o , a
64
further sustained decline in oil and gas prices, cancelations of our drilling contracts or contracts of our competito rs,
contract modifications, costs to comply with new governmental regulations, capital expenditu res req u ired d u e t o
advances in offshore drilling technology, growth in the global oversupply of oil and geopolit ical ev ents, su ch a s
lifting sanctions on oil-producing nations. Should actual market conditions in the future v ary sign if icantly f rom
market conditions used in our projections, our assessment of impairment would likely be different. See Note 4.
Fair Value of Financial Instruments
We believe that the carrying amount of our current financial instruments approximates fair value because of the
short maturity of these instruments. See Note 8.
Debt Issuance Costs
Deferred costs associated with our credit facilities are presented in “Other assets” in our Consolidated B alance
Sheets at December 31, 2020 and 2019 and amortized as interest expense over the respect iv e t erms o f t he cred it
facilities. During 2018, we paid $5.7 million in debt issuance and arrangement fees in connectio n wit h o u r cred it
facilities. Deferred costs associated with our senior notes are presented in o u r C o n so lidat ed B alance Sh eets a t
December 31, 2019 as a reduction to the related long-term debt and are amortized over the respective t erms o f t h e
related debt.
Subsequent to the commencement of bankruptcy proceedings in April 2 0 2 0 , we wro t e o f f $ 3 .9 m illio n in
deferred arrangement fees associated with our Revolving Credit Facility (as defined below) a nd $ 2 3.7 millio n in
unamortized discount and debt issuance costs associated with our senior indebtedness during the year ended
December 31, 2020 in accordance with FASB Accounting Standards Codification Topic No. 852 – Reorganizations,
or ASC 852. The write-off of fees and unamortized discount in 2020 were reported as “Reorganization items, net” in
our Consolidated Statements of Operations. See Notes 2 and 10.
Income Taxes
We account for income taxes in accordance with accounting standards t hat req uire t h e reco gn itio n o f t h e
amount of taxes payable or refundable for the current year and an asset and liability approach in reco gn izin g t h e
amount of deferred tax liabilities and assets for the future tax consequences of ev ents t h at h ave b een curren tl y
recognized in our financial statements or tax returns. In each of our tax jurisdictions we reco gn ize a current t ax
liability or asset for the estimated taxes payable or refundable on tax returns for the current year and a deferred t ax
asset or liability for the estimated future tax effects attributable t o t emporary d if ferences an d carry forwards .
Deferred tax assets are reduced by a valuation allowance, if necessary, which is determined by the amount of any tax
benefits that, based on available evidence, are not expected to be realized under a “more likely than not” ap proach .
Deferred tax assets and liabilities are classified as noncurrent in a classified statement o f f inan cial p o sit io n . We
make judgments regarding future events and related estimates especially as they pertain to th e f orecastin g o f o ur
effective tax rate, the potential realization of deferred tax assets such as u t ilizat ion o f f o reign t ax credit s, a nd
exposure to the disallowance of items deducted on tax returns upon audit.
We record both interest and penalties related to accrued uncertain tax positions in “Income tax benefit ” in o u r
Consolidated Statements of Operations. Liabilities for uncertain tax positions, including any interest and penalt ies,
are denominated in the currency of the related tax jurisdiction and are revalued for changes in cu rren cy ex chan ge
rates. The revaluation of such liabilities for uncertain tax positions is reported in “Income tax benefit” in our
Consolidated Statements of Operations. See Note 15.
Comprehensive Loss
Comprehensive (loss) income is the change in equity of a business enterprise during a period from transactio ns
and other events and circumstances except those transactions resulting from investments by owners and distributions
to owners. Comprehensive loss for the three years ended December 31, 2020, 2019 and 2018 includes net lo ss a nd
unrealized holding gains and losses on marketable securities and financial deriv at ives d esign ated a s cash f lo w
accounting hedges.
65
Foreign Currency
Our functional currency is the U.S. dollar. Transactions incurred in currencies other than t h e U.S. d o lla r a re
subject to gains or losses due to fluctuations in those currencies. We report foreign currency transactio n ga in s and
losses as “Foreign currency transaction (loss) gain” in our Consolidated Statements of Operations. The revalu atio n
of assets and liabilities related to foreign income taxes, including deferred tax assets and liabilities and uncertain tax
positions, including any interest and/or penalties, is reported in “Income tax benefit” in our Consolidated Statements
of Operations.
2. Chapter 11 Proceedings
Chapter 11 Cases
On April 26, 2020 (or the Petition Date), Diamond Offshore Drilling, Inc. (or the Company) and cert ain o f it s
direct and indirect subsidiaries (which we refer to, together with the Company, a s t he Deb to rs) f iled v olu ntary
petitions (or the Chapter 11 Cases) for relief under chapter 11 (or Chapter 11) of title 11 of the United St at es C o de
(or the Bankruptcy Code) in the United States Bankruptcy Court for the Southern District of Texas (or the
Bankruptcy Court). The Chapter 11 Cases are jointly administered under t h e cap tio n I n re Dia mo nd Of f sh ore
Drilling, Inc., et al., Case No. 20-32307 (DRJ).
The Debtors filed motions with the Bankruptcy Court seeking authorization to continue to operate their
businesses as “debtors-in-possession” under the jurisdiction of the Bankruptcy Court and in a ccordance wit h t h e
applicable provisions of the Bankruptcy Code and orders of the Bankruptcy Court. To ensure their ability to
continue operating in the ordinary course of business, the Debtors filed a variety of motions wit h t h e B an krupt cy
Court seeking “first day” relief, including authority to continue using their cash management system, pay emplo yee
wages and benefits and pay certain vendors and suppliers in the ordinary course of business, or the First Day
Motions, all of which were approved.
Pursuant to the First Day Motions, and subject to certain terms and dollar limits included therein, t h e Deb t o rs
were authorized to continue to use their unrestricted cash on hand, as well as all cash generated from daily
operations, which is being used to continue the Debtors’ operations without interruption during the cou rse o f t heir
restructuring. Also pursuant to the First Day Motions, the Debtors received the Bankruptcy Court’s authorization to,
among other things and subject to the terms and conditions set forth in the applicable orders, pay prepetition
employee wages, salaries, health benefits and other obligations to employees during their restructuring, pay cert ain
claims relating to critical and other vendors, continue their cash management programs and insurance policies a nd
continue to honor their current customer programs. The Debtors are authorized under the Bankruptcy C o de t o pay
post-petition expenses incurred in the ordinary course of business without seeking Bankruptcy Court approval. Until
a plan of reorganization is approved and effective, the Debtors will continue to manage their properties and op erat e
their businesses as “debtors-in-possession” under the jurisdiction of the Bankruptcy Court and in accordance wit h
the applicable provisions of the Bankruptcy Code and the orders of the Bankruptcy Court.
Commencement of the Chapter 11 Cases automatically stayed most actions again st t h e Deb tors, in clu d ing
actions to collect indebtedness incurred prior to the Petition Date, actions to enforce pre-Petition Dat e con tract ual
rights or remedies against the Debtors and actions to exercise control over the Debtors’ property. Subject to certain
exceptions under the Bankruptcy Code, the commencement of the Chapter 11 Cases also automatically st ayed t h e
continuation of most legal proceedings or the filing of other actions against the Debtors or their property to reco ver
on, collect, or secure a claim arising prior to the Petition Date or to exercise control over property o f t h e Deb tors’
bankruptcy estates, unless and until the Bankruptcy Court modifies or lifts the automatic stay as to any such claim.
Notwithstanding the general application of the automatic stay described a bove, go v ern mental a u th orit ies may
determine to continue actions brought under their police and regulatory powers.
The U.S. Trustee for the Southern District of Texas filed a notice appointing an official committee of unsecured
creditors on May 11, 2020, which was subsequently reconstituted on June 11, 2020 and September 14, 2020.
On May 27, 2020, the Bankruptcy Court approved a new key employee retention plan and a new non-executive
incentive plan covering certain non-executive key employees. On June 23, 2020, the Bankruptcy Court approved a
key employee incentive plan covering certain additional key employees, including our executive officers. Upo n t h e
66
participating employee’s acceptance of an award under the new compensatio n p lans, a ll o u t standin g u n vest ed
incentive awards previously granted to the employee under our previously existing incentive plans, co n sist in g o f
restricted stock units, or RSUs, stock appreciation rights, or SARs, and/or cash incentive awards, were canceled.
As of December 31, 2020, the Debtors had not emerged from bankruptcy.
On January 22, 2021, the Debtors entered into a Plan Support Agreement, or the PSA, among t h e Deb t ors,
certain holders of the Company’s 5.70% Senior Notes due 2039, 3.45% Senior Notes d u e 2 0 23, 4 .8 75 % Sen io r
Notes due 2043 and 7.875% Senior Notes due 2025 (collectively, the Senior Notes) party thereto (collectiv ely t h e
Consenting Note Holders) and certain holders of claims (collectively, the RCF Claims) under the Company’s $950.0
million syndicated revolving credit facility (or Revolving Credit Agreement). Concurrently, the Debtors entered into
the Backstop Agreement (as defined in the PSA) with certain holders of Senior Notes and entered into the
Commitment Letter (as defined in the PSA) with certain holders of RCF Claims to p ro vid e ex it f in ancin g u p on
emergence from bankruptcy.
See Note 18 for a discussion of the Debtors’ Chapter 11 plan of reorganization attached a s an exh ibit t o t h e
PSA, or the Plan.
Potential Claims
Certain holders of prepetition claims were required to file proofs of claim by August 17, 2020, and ap plicable
governmental entities were required to file proofs of claim by October 23, 2020. As of February 1, 2021, 866 proofs
of claim (or Claims), excluding intercompany obligations, totaling approximately $4.5 billion had b een f iled wit h
the Bankruptcy Court against the Debtors. In addition, it is possible that claimants will file additional and/or
amended Claims in the future, including Claims amended to assign values to Claims originally filed with no
designated value.
The Debtors have recorded $2.6 billion of "Liabilities subject to compromise" in their co m bin ed co ndensed
financial statements at December 31, 2020. Through the claims resolution process, as set forth in the Plan, we h a ve
identified, and we expect to continue to identify, Claims that we believe should be modified or disallowed ent irely
by the Bankruptcy Court because they are duplicative, have been settled, later amended or superseded, are wit h o ut
merit or are overstated or are not valid liabilities of the Debtors for other reasons. We will file object io ns wit h t h e
Bankruptcy Court as necessary for Claims we believe should be disallowed or modified in amount or priority. As is
typical in Chapter 11 cases, due to the number of claims filed and other factors, the claims resolutio n p ro cess will
continue beyond February 1, 2021. Due to the uncertainty of estimating certain claims prior to a final order b y t h e
Bankruptcy Court, ultimate recoveries on the Claims cannot be fully determined as of December 31, 2020.
Going Concern
During the first quarter of 2020, the business climate in which we operate experienced a sign if icant a dv erse
change, primarily as a result of the market impacts of the oil price wa r b et ween Sa udi Ara b ia an d R u ssia and
regulatory, market and commercial challenges that arose due to the COVID-19 pandemic and efforts to mitigate t h e
spread of the virus, both of which resulted in a dramatic decline in oil prices. As a result of the filing of the Chapt er
11 Cases, the principal and interest due under our outstanding Senior Notes and Revolving Credit Agreement
became immediately due and payable and have been presented as “Lia bilit ies su b j ect t o co mpromise” in o u r
Consolidated Balance Sheets at December 31, 2020. However, any efforts to enforce such payment obligations wit h
respect to our Senior Notes and Revolving Credit Agreement are automatically stayed as a result of the filing of t h e
Chapter 11 Cases. We have projected that we will not have sufficient cash on hand or available liquidity to repay all
such outstanding debt. For the year ended December 31, 2020, we reported a net loss of $1.3 billion, inclusiv e o f a
pre-tax $842.0 million impairment charge.
These conditions and events raise substantial doubt as to our ability to continue as a going concern f or t welv e
months after the date our financial statements are issued. Financial information in this report has been p repared o n
the basis that we will continue as a going concern, which presumes that we will be able to rea lize o ur a sset s an d
discharge our liabilities in the normal course of business as they come due. Financial information in this report do es
67
not reflect the adjustments to the carrying values of assets and liabilities and the reported expenses and balance sheet
classifications that would be necessary if we were unable to realize our assets and settle our lia b ilit ies a s a go in g
concern in the normal course of operations. Such adjustments could be material.
Our long-term liquidity requirements and the adequacy of capital resources are difficult to predict at this t im e.
Although we anticipate that the financial restructuring pursuant to our Chapt er 1 1 C ases will h elp a d d ress o u r
liquidity concerns, as of December 31, 2020, we did not have a plan of reorganization in place. Alth ou gh we f iled
the Plan with the Bankruptcy Court on January 22, 2021, as of the date of this report, t h e Pla n h as n ot y et b een
approved by the Bankruptcy Court. Additionally, the approval of the Plan, or another Chapter 11 plan of
reorganization, is not within our control and uncertainty remains over the Bankruptcy Court's approval of a p lan o f
reorganization. As such, due to the lack of clarity regarding confirmation of the Plan and emergence from
bankruptcy, we have concluded that substantial doubt continues to exist about our abilit y t o con tin ue as a go in g
concern.
Chapter 11 Accounting
We have prepared our Consolidated Financial Statements as if we were a going concern and in accordance with
ASC 852.
Prepetition Restructuring Charges. We have reported legal and other professio nal a dviso r f ees in curred in
relation to the Chapter 11 Cases, but prior to the Petition Date, as “Restru ct urin g a nd sep arat ion co st s” in o u r
Consolidated Statements of Operations for the year ended December 31, 2020. See Note 14 for a discussion of other
costs included in “Restructuring and separation costs.”
Reorganization Items. Expenditures, gains and losses that are realized or incurred by the Debtors subsequent to
the Petition Date and as a direct result of the Chapter 11 Cases are reported as “Reorganization it ems, n et ” in o u r
Consolidated Statements of Operations for the year ended December 31, 2020. These costs include legal a nd o t her
professional advisory service fees pertaining to the Chapter 11 Cases and all a dj ustments m ade t o t h e carry ing
amount of certain prepetition liabilities reflecting claims expected to be allowed by the Bankruptcy Court.
The following table provides information about reorganization items incurred during the year ended Decemb er
31, 2020, subsequent to the Petition Date (in thousands):
Professional fees
Write-off of debt issuance costs
Net gain on settlement with certain unsecured vendors
Total reorganization items, net
Year Ended
December 31,
2020
$
$
53,517
27,552
(4,159 )
76,910
Payments of $40.3 million related to professional fees and vendor cancellation costs have b een p resented a s
cash outflows from operating activities in our Consolidated Statements of Cash Flows for the year ended Decemb er
31, 2020. See Note 5.
Liabilities Subject to Compromise. We have reported prepetition unsecured and under-secured obligation s t hat
may be impacted by the Chapter 11 Cases as “Liabilities subject to compromise” in o u r C o nsolid at ed Bala nce
Sheets at December 31, 2020. ASC 852 requires prepetition liabilities that are subject to compromise to be reported
at the amounts expected to be allowed by the Bankruptcy Court. The amounts currently reported as liabilities subject
to compromise are preliminary and may be subject to future adjustment depending on Bankrup tcy C o urt actio ns,
further developments with respect to disputed claims, determinations of the secured status o f certain claims, t h e
values of any collateral securing such claims, rejection of executory contracts, continued reco ncilia tio n o r o t h er
events. These amounts represent our best estimate of allowed claims that will be resolved as part of the bank rupt cy
proceedings but may be ultimately settled for a lesser amount. We will continue to evaluate these liabilities
throughout the Chapter 11 Cases and adjust amounts as necessary. Such adjustments may be material.
68
Liabilities subject to compromise at December 31, 2020 consist of the following (in thousands):
December 31,
2020
$
Debt subject to compromise:
Borrowings under Revolving Credit Agreement
3.45% Senior Notes due 2023
7.875% Senior Notes due 2025
5.70% Senior Notes due 2039
4.875% Senior Notes due 2043
Lease liabilities
Accrued interest
Accounts payable
Other accrued liabilities
Other liabilities
Total liabilities subject to compromise
$
436,000
250,000
500,000
500,000
750,000
112,646
47,636
16,725
1,302
4,496
2,618,805
Upon filing of the Chapter 11 Cases on April 26, 2020, we ceased accruing interest on our Sen io r No t es a nd
borrowings under our Revolving Credit Agreement. As a result, we did not record $76.7 million and $21.3 m illio n
of contractual interest expense related to our Senior Notes and borrowings under our Revolving Credit Agreem en t,
respectively, for the year ended December 31, 2020. However, the exact amount of interest payable on bo rro wings
under the Revolving Credit Agreement after the Petition Date is subject to final determination in a cco rdan ce wit h
the Plan.
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Debtor Financial Statements.
Condensed combined financial statements of the Debtors are set fort h b elo w. Th ese f inan cial st a tement s
exclude the financial statements of the non-Debtor subsidiaries. Transactio ns a nd b alances o f receivables a nd
payables between the Debtors have been eliminated in consolidation. Amounts payable to the non -Debtor
subsidiaries are reported in the condensed combined balance sheet of the Debtors.
DIAMOND OFFSHORE DRILLING, INC. AND CERTAIN SUBSIDIARIES PARTY TO THE
BANKRUPTCY CASES (DEBTOR-IN-POSSESSION)
CONDENSED COMBINED BALANCE SHEET
(In thousands)
December 31,
2020
$
390,407
24,511
123,981
(102 )
123,879
50,439
1,000
590,236
4,112,527
2,468,384
184,955
$ 7,356,102
$
30,280
130,133
25,005
1,057,913
1,243,331
328,000
11,907
63,674
1,646,912
2,618,805
3,090,385
$ 7,356,102
ASSETS
Current assets:
Cash and cash equivalents
Restricted cash
Accounts receivable
Less: allowance for credit losses
Accounts receivable, net
Prepaid expenses and other current assets
Assets held for sale
Total current assets
Drilling and other property and equipment, net of
accumulated depreciation
Investments in non-debtor subsidiaries
Other assets
Total assets
LIABILITIES AND DEBTORS’ EQUITY
Current liabilities:
Accounts payable
Accrued liabilities
Taxes payable
Amounts payable to non-debtor subsidiaries
Total current liabilities
Note payable to non-debtor subsidiary
Deferred tax liability
Other liabilities
Total liabilities not subject to compromise
Liabilities subject to compromise
Total debtors’ equity
Total liabilities and debtors’ equity
70
DIAMOND OFFSHORE DRILLING, INC. AND CERTAIN SUBSIDIARIES PARTY TO THE
BANKRUPTCY CASES (DEBTOR-IN-POSSESSION)
CONDENSED COMBINED STATEMENT OF OPERATIONS
(In thousands)
Revenues:
Contract drilling
Revenues related to reimbursable expenses
Total revenues
Operating expenses:
Contract drilling, excluding depreciation
Reimbursable expenses
Depreciation
General and administrative
Impairment of assets
Restructuring and separation costs
Gain on disposition of assets
Total operating expenses
Operating loss
Other income (expense):
Interest income
Interest expense
Foreign currency transaction loss
Reorganization items, net
Other, net
Loss before income tax benefit
Income tax benefit
Net loss
Year Ended
December 31,
2020
$
601,354
40,952
642,306
538,074
38,917
319,124
53,039
842,016
15,634
(7,208 )
1,799,596
(1,157,290 )
466
(50,586 )
(1,757 )
(76,910 )
(431 )
(1,286,508 )
29,093
$ (1,257,415 )
71
DIAMOND OFFSHORE DRILLING, INC. AND CERTAIN SUBSIDIARIES PARTY TO THE
BANKRUPTCY CASES (DEBTOR-IN-POSSESSION)
CONDENSED COMBINED STATEMENT OF CASH FLOWS
(In thousands)
Year Ended
December 31,
2020
$
(1,257,415 )
319,124
842,016
22,106
(7,208 )
(19,467 )
5,637
13,238
1,337
(4,231 )
(3,991 )
(18,262 )
(7,608 )
3,701
72,550
17,664
(1,713 )
(15,712 )
61,697
23,463
(184,101 )
(15,661 )
13,119
(186,643 )
436,000
436,000
272,820
142,098
414,918
Operating activities:
Net loss
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation
Loss on impairment of assets
Reorganization items, net
Gain on disposition of assets
Deferred tax provision
Stock-based compensation expense
Contract liabilities, net
Contract assets, net
Deferred contract costs, net
Long-term employee remuneration programs
Noncurrent collateral deposits
Other assets, noncurrent
Other
Changes in operating assets and liabilities:
Accounts receivable
Prepaid expenses and other current assets
Accounts payable and accrued liabilities
Taxes payable
Due to non-debtor subsidiaries
Net cash provided by operating activities
Investing activities:
Capital expenditures
Capital contribution to non-debtor subsidiary
Proceeds from disposition of assets, net of disposal costs
Net cash used in investing activities
Financing activities:
Borrowings under credit facility
Net cash provided by financing activities
Net change in cash, cash equivalents and restricted cash
Cash, cash equivalents and restricted cash, beginning of period
Cash, cash equivalents and restricted cash, end of period
$
72
3. Revenue from Contracts with Customers
The activities that primarily drive the revenue earned from our contract drilling services include (i) providin g a
drilling rig and the crew and supplies necessary to operate the rig, (ii) mobilizing and demobilizin g t h e rig t o a n d
from the drill site and (iii) performing rig preparation activities and/or modificat io ns req uired f or t h e co ntract.
Consideration received for performing these activities may consist of dayrate drilling rev en u e, m ob ilizat ion an d
demobilization revenue, contract preparation revenue and reimbursement revenue. We account for these int egrated
services provided within our drilling contracts as a single performance obligation satisfied over time and comprised
of a series of distinct time increments in which we provide drilling services.
Consideration for activities that are not distinct within the context of our contracts and do not correspon d t o a
distinct time increment within the contract term are allocated across the single performance obligation and
recognized ratably over the initial term of the contract (which is the period we estimate t o b e b enefit ed f rom t h e
corresponding activities and generally ranges from two to 60 months). Consideration for activities that correspond to
a distinct time increment within the contract term is recognized in the period when the services are performed. Th e
total transaction price is determined for each individual contract by estimating both fixed and variable consideratio n
expected to be earned over the term of the contract. See below for further discussion regarding the allocation o f t h e
transaction price to the remaining performance obligations.
The amount estimated for variable consideration may be constrained (reduced) a nd is o n ly in clu d ed in t h e
transaction price to the extent that it is probable that a significant reversal of previously recognized revenue will n o t
occur throughout the term of the contract. When determining if variable co nsid erat ion sh ould b e co nst rain ed,
management considers whether there are factors outside of our control that could result in a significant rev ersal o f
revenue as well as the likelihood and magnitude of a potential reversal of revenue. These estimates are re -assessed
each reporting period as required.
Dayrate Drilling Revenue. Our drilling contracts generally provide for payment on a dayrate basis, with h igh er
rates for periods when the drilling unit is operating and lower rates or zero rates for periods when drilling operations
are interrupted or restricted. The dayrate invoices billed to the customer are t y pically d etermined b ased o n t h e
varying rates applicable to the specific activities performed on an hourly b asis. Su ch d ayrate co nsideratio n is
allocated to the distinct hourly increment it relates to within the contract term, and therefore, recognized in line wit h
the contractual rate billed for the services provided for any given hour.
Mobilization/Demobilization Revenue. We may receive fees (on either a fixed lump-sum o r v a riable d ayrat e
basis) for the mobilization and demobilization of our rigs. These activities are not considered to be dist in ct wit h in
the context of the contract and therefore, the associated revenue is allocated to the overall performan ce o bliga tio n
and recognized ratably over the initial term of the related drilling contract. We record a contract liability for
mobilization fees received, which is amortized ratably to contract drilling revenue as services are rendered over t h e
initial term of the related drilling contract. Demobilization revenue expected to be received upon contract
completion is estimated as part of the overall transaction price at contract inceptio n an d reco gnized in ea rnin gs
ratably over the initial term of the contract with an offset to an accretive contract asset.
In some contracts, there is uncertainty as to the likelihood and amount of expected demobilization revenue to be
received. For example, contractual provisions may require that a rig demobilize a certain distance before the
demobilization revenue is payable or the amount may vary dependent upon whether or n ot t h e rig h a s a dd it ional
contracted work within a certain distance from the wellsite. Therefore, the estimate for such revenue may be
constrained, as described above, depending on the facts and circumstances pertaining to the specific co n tract . We
assess the likelihood of receiving such revenue based on our past experience and knowledge of market conditions.
Contract Preparation Revenue. Some of our drilling contracts require downtime before the start of the contract
to prepare the rig to meet customer requirements. At times, we may be compensated by the customer for such wo rk
(on either a fixed lump-sum or variable dayrate basis). These activities are not considered to be distinct wit h in t he
context of the contract. We record a contract liability for contract preparation fees receiv ed , wh ich is a mo rtized
ratably to contract drilling revenue over the initial term of the related drilling contract.
73
Capital Modification Revenue. From time to time, we may receive fees from our customers for capital
improvements or upgrades to our rigs to meet contractual requirements (on either a f ix ed lu m p -sum o r v ariab le
dayrate basis). The activities related to these capital modifications are not con sidered t o b e d ist in ct wit h in t he
context of our contracts. We record a contract liability for such fees and recognize them ratably as contract d rillin g
revenue over the initial term of the related drilling contract.
Revenues Related to Reimbursable Expenses. We generally receive reimbursements from our customers for t h e
purchase of supplies, equipment, personnel services and other services provided at their request in accordance with a
drilling contract or other agreement. Such reimbursable revenue is variable and subject to uncertainty, as the
amounts received and timing thereof are highly dependent on factors outside of our influence. Accordingly,
reimbursable revenue is fully constrained and not included in the total transaction p rice u n til t h e u n certain t y is
resolved, which typically occurs when the related costs are incurred on behalf o f a cu stomer. We a re gen erally
considered a principal in such transactions and record the associated revenue a t t h e gro ss amo unt b illed t o t h e
customer, as “Revenues related to reimbursable expenses” in our Consolidated Statement s o f Op eratio ns. Su ch
amounts are recognized ratably over the period within the contract term during which the corresponding goo d s an d
services are to be consumed.
Contract Balances
Accounts receivable are recognized when the right to consideration becomes unconditional b ased upon
contractual billing schedules. Payment terms on invoiced amounts are typically 30 days. Cont ract asset b alances
consist primarily of demobilization revenue that we expect to receive and is reco gn ized ratab ly t hro ugho ut t he
contract term, but invoiced upon completion of the demobilization activities. Once the demobilizat ion rev enu e is
invoiced, the corresponding contract asset is transferred to accounts receivable. Contract asset s may a lso in clu de
amounts recognized in advance of amounts invoiced due to the blending of rates wh en a co ntract h as o p eratin g
dayrates that increase over the initial contract term. Contract liabilities include payments received for mobiliza tio n
as well as rig preparation and upgrade activities which are allocated to the ov erall p erf ormance o b ligat io n a nd
recognized ratably over the initial term of the contract. Contract liabilities may also include amou nts in v o iced in
advance of amounts recognized due to the blending of rates when a contract has operating dayrates t hat d ecr ease
over the initial contract term.
Contract balances are netted at a contract level, such that deferred revenue for mobilization, contract preparation
and capital modifications (contract liabilities) is netted with any accrued demobilization revenue (contract asset) f o r
each applicable contract.
The following table provides information about receivables, contract assets and contract lia bilit ies f ro m o ur
contracts with customers (in thousands):
Trade receivables
Current contract assets (1)
Noncurrent contract assets (1)
Current contract liabilities (deferred revenue) (1)
Noncurrent contract liabilities (deferred revenue) (1)
December 31,
2020
December 31,
2019
$ 115,732 $ 199,572
6,314
—
(9,573 )
(38,531 )
2,870
—
(51,763 )
(5,164 )
(1) Contract assets and contract liabilities may reflect balances that have been netted together on a contract b asis.
Net current contract asset and liability balances are included in “Prepaid expenses and other current assets” and
“Accrued liabilities,” respectively, and net noncurrent contract asset and lia b ilit y b alances are in clu d ed in
“Other assets” and “Other liabilities,” respectively, in our Consolidated Balance Sheets a s o f December 3 1 ,
2020 and 2019.
74
Significant changes in the contract assets and the contract liabilities balances during the period are as f o llo ws
(in thousands):
Contract assets, beginning of period
Contract liabilities, beginning of period
Net balance at beginning of period
Decrease due to amortization of revenue that was
included in the beginning contract liability
balance
Increase due to cash received, excluding amounts
recognized as revenue during the period
Increase due to revenue recognized during the
period but contingent on future performance
Decrease due to transfer to receivables during the
period
Adjustments
Net balance at end of period
Contract assets at end of period
Contract liabilities at end of period
Net Contract Balances
December 31,
$
2020
2019
6,314 $
(48,104 )
(41,790 )
8,939
(20,526 )
(11,587 )
35,231
6,952
(44,081 )
(34,529 )
4,748
3,537
(7,466 )
(699 )
(5,119 )
(1,044 )
$ (54,057 ) $ (41,790 )
6,314
$
(48,104 )
2,870 $
(56,927 )
Deferred Contract Costs
Certain direct and incremental costs incurred for upfront preparation, initial mobilization and modificatio ns o f
contracted rigs represent costs of fulfilling a contract as they relate directly to a contract, enhance resources that will
be used in satisfying our performance obligations in the future and are expected to be reco vered . Su ch co sts a re
deferred and amortized ratably to contract drilling expense as services are rendered o ver t h e in it ia l t er m o f t h e
related drilling contract. Such deferred contract costs in the amount of $19.8 million and $2.2 million are reported in
“Prepaid expenses and other current assets” and “Other assets,” respectively, in our Consolidated Balance Sheets a t
December 31, 2020. Deferred contract costs in the amount of $20.0 million and $4.0 million are reported in “Prepaid
expenses and other current assets” and “Other assets,” respectively, in our Consolidated Balance Sheets at
December 31, 2019. During the years ended December 31, 2020 and 2019, the amount of amortization of such costs
was $22.8 million and $96.0 million, respectively. There was no impairment loss in relation to capitalized costs.
Costs incurred for the demobilization of rigs at contract completion are recogn ized as in cu rred d urin g t h e
demobilization process. Costs incurred for rig modifications or upgrades required for a contract, which are
considered to be capital improvements, are capitalized as drilling and other property and equipment and depreciated
over the estimated useful life of the improvement.
Transaction Price Allocated to Remaining Performance Obligations
The following table reflects revenue expected to be recognized in the future related to unsatisfied performance
obligations as of December 31, 2020 (in thousands):
Mobilization and contract
preparation revenue
Capital modification
revenue
Blended rate and other revenue
Total
2021
For the Years Ending December 31,
2022
Total
$
26,521 $
2,614 $
13,906
14,668
55,095 $
1,452
874
4,940 $
$
29,135
15,358
15,542
60,035
75
The revenue included above consists of expected fixed mobilization and upgrade revenue for both wh olly a nd
partially unsatisfied performance obligations, as well as expected variable mobilization and u p grade rev enu e f o r
partially unsatisfied performance obligations, which has been estimated for purposes of allocating across the en t ire
corresponding performance obligations. Revenue expected to be recognized in the future related to the blen din g o f
rates when a contract has operating dayrates that decrease over the init ial co n tract t erm is a lso in clu d ed. Th e
amounts are derived from the specific terms within drilling contracts that contain such provisions, and the expect ed
timing for recognition of such revenue is based on the estimated start date and duration of each respective co ntract
based on information known at December 31, 2020. The actual timing of recognition of such amounts may vary due
to factors outside of our control. We have applied the disclosure practical expedient in To p ic 6 0 6 a nd hav e n o t
included estimated variable consideration related to wholly unsatisfied performance obligations or to distinct fu tu re
time increments within our contracts, including dayrate revenue.
4. Asset Impairments
2020 Impairments. As discussed in Note 2, during the first quarter of 2020, the business climate in wh ich we
operate experienced a significant adverse change, which resulted in a dramatic decline in oil prices. During the f irst
quarter of 2020, we evaluated five rigs with indicators of impairment. Based on our assumptions and analysis at that
time, we determined that the carrying values of four of our drilling rigs were impaired and recorded a n a ggregate
impairment charge of $774.0 million to write down the carrying values of these rigs to their estimated fair values.
During the fourth quarter of 2020, we evaluated three drilling rigs with indicators of impairment, including o n e
rig that was previously impaired in the first quarter of 2020. Based on further diminished business opportunities f o r
the previously impaired rig, we reassessed our business plan and, after consideration of several factors, including the
costs of relocating and stacking the rig, concluded that the carrying value of this rig was impaired at Decemb er 3 1 ,
2020. We recognized an additional impairment charge of $68.0 million to further adjust the carrying value of this rig
to its fair value.
With respect to the two other rigs with indicators of impairment at December 31, 2020, we determined that t h e
undiscounted probability-weighted cash flow for each of these rigs was in excess of each rig’s respect iv e carryin g
value, based on our assumptions and analysis at that time, and concluded that no impairment of these t wo rigs h a d
occurred at December 31, 2020.
We collectively refer to rigs impaired during the first and fourth quarters of 2020 as the 20 20 I mpaired R igs.
We estimated the fair values of the 2020 Impaired Rigs using an income approach, whereby the fair v a lue o f each
rig was estimated based on a calculation of the rig’s future net cash flows. These calculations u t ilized sign if icant
unobservable inputs, including management’s assumptions related to estimated dayrate rev en ue, rig u t iliza t io n,
estimated capital expenditures, repair and regulatory survey costs, as well a s est im ated p ro ceed s t hat m ay b e
received on ultimate disposition of each rig. Our fair value estimates were rep resentat iv e o f Level 3 f a ir v alu e
measurements due to the significant level of estimation involved and the lack of transparency as to the inputs u sed.
See Note 8.
2019 Impairment Evaluation. At December 31, 2019, we evaluated three drilling rigs with indicators of
impairment. Based on our assumptions and analysis at that time, we determined that the undiscounted pro babilit y -
weighted cash flow of each of these rigs was in excess of its carrying value. As a result, we concluded that no
impairment of these rigs had occurred at December 31, 2019.
2018 Impairment. During 2018, we recorded an impairment loss of $27.2 million to recognize a redu ct ion in
fair value of the Ocean Scepter. We estimated the fair value of the impaired rig using a market approach based o n a
signed agreement to sell the rig, less estimated costs to sell. We considered this valuation approach to be a Lev el 3
fair value measurement due to the level of estimation involved as the sale had not yet been completed at the tim e o f
our analysis.
See Note 1.
76
5. Supplemental Financial Information
Consolidated Balance Sheets Information
Accounts receivable, net of allowance for bad debts, consists of the following (in thousands):
December 31,
2020
2019
Trade receivables
Value added tax receivables
Federal income tax receivable
Related party receivables
Other
Allowance for credit losses
Total
10,781
8,420
78
1,211
$ 115,732 $ 199,572
17,716
38,574
166
287
136,222 256,315
(5,459 )
$ 130,660 $ 250,856
(5,562 )
The allowance for credit losses at December 31, 2020 and 2019 represents our current estimate o f credit lo sses
associated with our “Trade receivables” and “Current contract assets.” See Note 8 for a discussion of our
concentrations of credit risk and allowance for credit losses.
Prepaid expenses and other current assets consist of the following (in thousands):
December 31,
2020
2019
$ 19,808 $ 20,019
12,475
18,250
6,314
2,892
—
2,990
5,718
$ 62,275 $ 68,658
16,112
12,606
2,870
2,446
2,408
2,317
3,708
December 31,
2019
2020
$ 51,763 $
30,296
17,275
21,123
6,495
7,075
5,072
—
1,689
9,573
42,494
5,275
37,969
7,074
56,603
20,030
28,234
3,528
$ 140,788 $ 210,780
Deferred contract costs
Prepaid taxes
Rig spare parts and supplies
Current contract assets
Prepaid insurance
Prepaid legal retainers
Prepaid rig costs
Other
Total
Accrued liabilities consist of the following (in thousands):
Deferred revenue
Payroll and benefits
Shorebase and administrative costs
Rig operating expenses
Personal injury and other claims
Accrued capital project/upgrade costs
Current operating lease liability
Interest payable
Other
Total
77
Consolidated Statements of Cash Flows Information
Noncash investing activities excluded from the Consolidated Statements of Cash Flows and other supplemental
cash flow information is as follows (in thousands):
Accrued but unpaid capital expenditures at period
end
Common stock withheld for payroll tax
obligations (1)
Cash interest payments
Cash paid for reorganization items, net
Cash income taxes paid (refunded), net:
2020
December 31,
2019
2018
$
7,615 $ 56,603 $ 37,234
395
1,301
19,843 113,063 113,063
—
40,301
1,398
—
Foreign
U.S. federal
State
11,826 17,821
1,001
(42,462 )
(15 )
36
9,286
(7,389 )
2
(1) Represents the cost of 131,698, 132,547 and 87,799 shares of common stock withheld to satisfy the payroll t a x
obligation incurred as a result of the vesting of restricted stock units in 2020, 2 0 19 a nd 2 0 18, resp ectiv ely .
These costs are presented as a deduction from stockholders’ equity in “Treasury stock ” in o u r C o n solid ated
Balance Sheets at December 31, 2020, 2019 and 2018, respectively.
In June 2020, we received Trinidad bonds in settlement of a VAT receivable. The bonds were valued at
$5.7 million based on third-party quotes received, which approximated the amount of the settled receivable. Durin g
the third quarter of 2020, we sold the bonds for proceeds of $5.9 million.
6. Stock-Based Compensation
We have an Equity Incentive Compensation Plan, or Equity Plan, for our officers, in d ependent con tract ors,
employees and non-employee directors, which is designed to encourage stock ownership by such persons. Under the
Equity Plan, we may grant both time-vesting and performance-vesting awards, which are earned on the achievement
of certain performance criteria. The following types of awards may be granted under the Equity Plan:
• Stock options (including incentive stock options and nonqualified stock options);
• Stock appreciation rights, or SARs;
• Restricted stock;
• Restricted stock units, or RSUs;
• Performance shares or units; and
• Other stock-based awards (including dividend equivalents).
A maximum of 7,500,000 shares of our common stock were initially available for the gra n t o r set t lemen t o f
awards under the Equity Plan, subject to adjustment for certain business transactions and changes in capital
structure. Vesting conditions and other terms and conditions of awards under the Equity Plan are determined by o ur
Board of Directors or the compensation committee of our Board of Directors, subject to the terms of the Equity Plan.
RSUs may be issued with performance-vesting or time-vesting features. Except for RSUs issued to our Chief
Executive Officer, RSUs are not participating securities, and the holders of such awards have n o righ t t o receiv e
regular dividends if or when declared. However, we have not paid a dividend to stockholders since 2015.
Total compensation cost recognized for all awards under the Equity Plan (or its predecessor) for the years ended
December 31, 2020, 2019 and 2018 was $5.6 million, $6.2 million and $6.8 million , resp ectiv ely . Tax b enef it s
recognized for the years ended December 31, 2020, 2019 and 2018 related thereto were $0.2 million, $ 0 .5 m illio n
and $0.8 million, respectively. As of December 31, 2020 there was $0.1 million of total unrecognized compensation
cost related to non-vested awards under the Equity Plan, which we expect to recognize o v er a weigh t ed a verage
period of one year.
78
On May 27, 2020, the Bankruptcy Court approved a new key employee retention plan and a n ew non-executive
incentive plan covering certain non-executive key employees. On June 23, 2020, the Bankruptcy Court approved a
key employee incentive plan covering certain additional key employees, including our executive officers. Upo n t h e
participating employee’s acceptance of an award under the new compensatio n p lans, a ll o u t standin g u n vest ed
incentive awards previously granted to the employee under our previously-existing incentive plans, co n sist in g o f
RSUs, SARs and/or cash incentive awards, were canceled.
Time-Vesting Awards
SARs. Currently, SARs awarded under the Equity Plan generally vest immediately and expire in ten years. Th e
exercise price per share of SARs awarded under the Equity Plan may not be less than the fair mark et v alue o f o u r
common stock on the date of grant.
The fair value of SARs granted under the Equity Plan (or its predecessor) during each of the years ended
December 31, 2020, 2019 and 2018 was estimated using the Black Scholes pricing model with the following
weighted average assumptions:
Year Ended December 31,
2019
2018
2020
Expected life of SARs (in years)
Expected volatility
Risk free interest rate
8
127.65 %
1.85 %
7
39.35 %
2.11 %
7
32.10 %
2.56 %
The expected life of SARs is based on historical data as is the expected volatility. Risk free in t erest ra tes are
determined using the U.S. Treasury yield curve at time of grant with a term equal to the expected life of the SARs.
A summary of SARs activity under the Equity Plan as of December 31, 2020 and changes during the year t h en
ended is as follows:
Awards outstanding at January 1, 2020
Granted
Cancelled
Expired
Awards outstanding at December 31, 2020
Awards exercisable at December 31, 2020
Number of
Awards
922,230 $
7,000 $
(160,400 ) $
(156,130 ) $
612,700 $
612,700 $
Weighted-
Average
Exercise
Price
50.19
7.13
56.57
66.61
43.84
43.84
Weighted-
Average
Remaining
Contractual
Term
(Years)
Aggregate
Intrinsic
Value
(In
Thousands)
3.3 $
3.3 $
—
—
The weighted-average grant date fair values per share of awards granted during the years ended December 3 1 ,
2020, 2019 and 2018 were $6.64, $3.75 and $7.11, respectively. The total intrinsic value of awards exercised during
the years ended December 31, 2020, 2019 and 2018 was $0, $0 and $0.1 million, respectively. The total fair value of
awards vested during the years ended December 31, 2020, 2019 and 2018 was $0.1 million, $0.1 millio n a nd $ 0 .7
million, respectively.
Restricted Stock Units. RSUs are contractual rights to receive shares of our common stock in the f u t ure if t h e
applicable vesting conditions are met. In 2020, 2019 and 2018, we granted an aggregate of 0, 310,700 a nd 1 35 ,759
time-vesting RSUs, respectively. One-half of each annual grant of time-vesting RSUs will vest two years from the date
of grant and the remaining 50% will vest three years from the date of grant, conditioned upon continued emplo yment
through the applicable vesting date. The fair value of time-vesting RSUs granted under the Equity Plan was est imat ed
based on the fair market value of our common stock on the date of grant.
79
A summary of activity for time-vesting RSUs under the Equity Plan as of December 3 1, 2 0 20 an d chan ges
during the year then ended is as follows:
Nonvested awards at January 1, 2020
Granted
Vested
Cancelled
Forfeited
Nonvested awards at December 31, 2020
Weighted
-Average
Grant Date
Fair Value
Per Share
12.58
—
15.64
11.26
11.55
11.49
Number
of Awards
533,603 $
— $
(156,819 ) $
(301,816 ) $
(63,968 ) $
11,000 $
The total fair value of time-vesting RSUs that vested during the years ended December 31, 2020, 2019 and 2018
was $0.2 million, $1.9 million and $1.9 million, respectively.
Performance-Vesting Awards
Restricted Stock Units. In 2020, 2019 and 2018, we granted an aggregate of 0, 190,634 and 194,563 performance-
vesting RSUs, respectively, which will vest upon achievement of certain performance goals as set forth in the
individual award agreements over the three-year performance period beginning on January 1 in the year of grant . The
shares of our common stock to be received upon the vesting of the performance-vesting RSUs will be delivered no later
than March 15 of the year following completion of the three-year performance period. The fair value of performance -
vesting RSUs granted under the Equity Plan to employees was estimated based on the fair market value of our common
stock on the date of grant.
A summary of activity for performance-vesting RSUs under the Equity Plan a s o f December 3 1, 2 0 20 an d
changes during the year then ended is as follows:
Nonvested awards at January 1, 2020
Granted
Vested
Cancelled
Forfeited
Nonvested awards at December 31, 2020
Weighted
-Average
Grant Date
Fair Value
Per Share
14.41
—
16.61
12.58
12.31
—
Number
of Awards
709,277 $
— $
(325,280 ) $
(346,001 ) $
(37,996 ) $
— $
The total fair value of performance-vesting RSUs that vested during the years ended December 31, 2020, 2 01 9
and 2018 was $1.2 million, $2.3 million and $2.5 million, respectively.
7. Loss Per Share
We present basic and diluted loss per share on our Consolidated Statements of Operations. Basic loss per sh are
excludes dilution and is computed by dividing net loss by the weighted-average number of shares of common st o ck
outstanding for the period. We experienced a net loss for each of the years in the three-year period ended December
31, 2020 and therefore, have excluded shares of common stock issuable upon exercise of outstanding stock
appreciation rights and vesting of outstanding restricted stock units from the calculation of weighted -average shares
because their inclusion would be antidilutive.
The following table sets forth the stock-based awards excluded from the computations of diluted loss
per share (in thousands):
80
Year Ended December 31,
2019
2020
2018
Employee and director:
SARs
RSUs
777
464
982
1,205
1,133
1,153
8. Financial Instruments and Fair Value Disclosures
Concentrations of Credit Risk and Allowance for Credit Losses
Our credit risk corresponds primarily to trade receivables. Since the market for our services is the o f fshore o il
and gas industry, our customer base consists primarily of major and independent oil and gas companies, as well a s
government-owned oil companies. At December 31, 2020, we believe that we have potentially significant
concentrations of credit risk due to the number of rigs we currently have contracted a nd o u r lim it ed n u mber o f
customers, as some of our customers have contracted for multiple rigs.
In general, before working for a customer with whom we have not had a prior bu siness relat io nship an d/o r
whose financial stability may be uncertain, we perform a credit review on that customer, including a rev iew o f it s
credit ratings and financial statements. Based on that credit review, we may require that the customer h ave a b ank
issue a letter of credit on its behalf, prepay for the services in advance or provide other credit en hancements. We
currently have one customer for which we have required letters of credit to guarantee $12.8 million of the revenue to
be earned pursuant to a contract extension amendment signed during the third quarter of 2020. We have not required
any other credit enhancements by our customers or required any to pay for services in a d vance a t December 3 1,
2020. We have historically used the specific identification method to identify and reserve for uncollectible accounts.
The amounts reserved for uncollectible accounts in previous periods have not been significant, in d iv id ually o r in
comparison to our total revenues. At December 31, 2020, $6.1 million in trade receivables were considered past due
by 30 days or more, of which $5.5 million were fully reserved for in previous years. The remainin g $ 0 .6 millio n
were less than 90 days past due and considered collectible.
Pursuant to ASU 2016-13, we have reviewed our historical credit loss experience over a look-back period of ten
years, which we deem to be representative of both up-turns and down-cycles in the offshore drilling industry. Based
on this review, we developed a credit loss factor using a weighted -average ratio of our actual credit losses to
revenues during the look-back period. In addition, we also considered current a nd f ut ure ant icipat ed economic
conditions in determining our credit loss factor, including crude oil prices and liquidity of credit markets. In
applying the requirements of CECL, we segregated our trade receivables into three credit loss risk p o o ls b a sed o n
customer credit ratings, each of which represents a tier of increasing credit risk. We calculated a credit lo ss f a ct or
based on historical loss rate information and then applied a multiple of our credit loss factor to each o f t hese risk
pools, considering the impact of current and future economic information and the level of risk associated with th ese
pools, to calculate our current estimate of credit losses. Trade receivables that are fully covered by allo wan ces f or
credit losses are excluded from these risk pools for purposes of calculating our current estimate of credit losses.
For purposes of calculating our current estimate of credit losses at January 1, 2020 and December 31, 2020, a ll
trade receivables were deemed to be in a single risk pool based on their credit ratings at each respective period. Ou r
current estimate of credit losses under CECL was $0.1 million at December 31, 2020, which included the
cumulative adjustment recorded for the initial adoption of ASU 2016-13. Due to im materialit y, t h e cu mulativ e
adjustment was recorded in “Contract drilling, excluding depreciation” expense in our Consolidated Statement s o f
Operations instead of in opening retained earnings as prescribed in ASU 2016 -13. Our total a llo wance f o r cred it
losses was $5.6 million and $5.5 million at December 31, 2020 and 2019, resp ectively. See Notes 1 and 5.
Fair Values
Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liabilit y (a n
exit price) in the principal or most advantageous market for the asset or liability in an orderly t ransact io n b etween
81
market participants on the measurement date. The fair value hierarchy prescribed by GAAP req u ires a n en tit y t o
maximize the use of observable inputs and minimize the use of unobservable inputs when m easurin g f air v alu e.
There are three levels of inputs that may be used to measure fair value:
Level 1 Quoted prices for identical instruments in active markets.
Level 2 Quoted market prices for similar instruments in active markets; quoted prices f or id en t ical o r sim ila r
instruments in markets that are not active; and model-derived valuations in which all sign if ica n t in pu ts
and significant value drivers are observable in active markets.
Level 3 Valuations derived from valuation techniques in which one or more significant inputs or significant valu e
drivers are unobservable. Level 3 assets and liabilities generally include financial instruments whose value
is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as
instruments for which the determination of fair value requires sign if ican t m anagemen t j u dgment o r
estimation or for which there is a lack of transparency as to the inputs used.
Certain of our assets and liabilities are required to be measured at fair value on a recurring basis in accordance
with GAAP. In addition, certain assets and liabilities may be recorded at fair value on a nonrecurring basis.
Generally, we record assets at fair value on a nonrecurring basis as a result of impairment charges. We reco rd ed
impairment charges related to four of our drilling rigs, which were measured at fair value on a nonrecu rrin g b asis
in 2020 and have presented the aggregate loss in “Impairment of assets” in our Consolidated Statements of
Operations for the year ended December 31, 2020.
Assets measured at fair value are summarized below (in thousands).
Nonrecurring fair value
measurements:
Impaired assets (2)
December 31, 2020
Fair Value Measurements Using
Level 1
Level 2
Level 3
Assets at
Fair Value
Total
Losses
for Year
Ended (1)
$
— $
— $
1,000 $
1,000 $ 842,016
December 31, 2019
Fair Value Measurements Using
Level 1
Level 2
Level 3
Assets at
Fair Value
Recurring fair value measurements:
Money market funds
$
135,300 $
— $
— $
135,300
(1) Represents impairment losses of $774.0 million and $68.0 million recognized during the f irst a nd f o urth
quarters of 2020, respectively, related to four semisubmersible rigs which were written down to their
estimated fair values. See Note 4.
(2) Represents the total book value as of December 31, 2020 of one semisubmersible rig, wh ich wa s writ t en
down to its estimated fair value during the fourth quarter of 2020. See Note 4.
We believe that the carrying amounts of our other financial assets and liabilities (excluding lo n g -t erm d ebt ),
which are not measured at fair value in our Consolidated Balance Sheets, approx imat e fair v a lu e b ased o n t h e
following assumptions:
• Cash and cash equivalents and restricted cash -- The carrying amounts approximate fair value because o f
the short maturity of these instruments.
• Accounts receivable and accounts payable -- The carrying amounts approximate fair v alu e b ased o n t h e
nature of the instruments.
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Our Senior Notes are not measured at fair value; however, under the GAAP fair value h ierarchy , o ur Sen io r
Notes would be considered Level 2 liabilities. The fair value of our Senior Notes was derived u sin g a t h ird -party
pricing service at December 31, 2020 and 2019. We perform control procedures over information we o b tain f rom
pricing services and brokers to test whether prices received represent a reasonable est imate o f f air v a lue. Th ese
procedures include the review of pricing service or broker pricing methodologies and comparing fair value estimates
to actual trade activity executed in the market for these instruments occurring generally within a 10 -day p erio d o f
the report date.
Fair values and related carrying values of our Senior Notes (see Note 10) are shown below (in millions).
3.45% Senior Notes due 2023
7.875% Senior Notes due 2025
5.70% Senior Notes due 2039
4.875% Senior Notes due 2043
$
December 31, 2020
Fair
Value
Carrying
Value
December 31, 2019
Fair
Value
Carrying
Value
30.6 $
61.3
61.2
91.9
250.0 $
500.0
500.0
750.0
212.5 $
435.0
292.5
408.8
249.6
497.1
497.3
749.0
We have estimated the fair value amounts by using appropriate valuatio n m etho dolo gies a nd in f ormatio n
available to management. Considerable judgment is required in developing these estimates, an d a ccordin gly , n o
assurance can be given that the estimated values are indicative of the amount s t hat wo u ld b e realized in a f ree
market exchange.
9. Drilling and Other Property and Equipment
Cost and accumulated depreciation of drilling and other property a nd equipment are summarized as follows (in
thousands):
Drilling rigs and equipment
Land and buildings
Office equipment and other
Cost
Less: accumulated depreciation
Drilling and other property and equipment, net
December 31,
2020
2019
41,072
83,016
$ 6,987,630 $ 8,004,489
64,267
92,289
7,111,718 8,161,045
(2,988,909 ) (3,008,217 )
$ 4,122,809 $ 5,152,828
During 2020, we recognized an aggregate pre-tax gain of $7.4 million on the disposal of assets, which included
a pre-tax gain on the sale of our corporate headquarters office building in Houston, Texas and the Ocean Confidence
of $3.7 million and $3.5 million, respectively. Also, during 2020, we recorded an aggregate impairment charge o f
$842.0 million, to write down four of our drilling rigs with indicators of impairment to their estimated f air v a lues.
See Notes 4 and 8.
During 2020, we transferred the net book value of the Ocean America and Ocean Rover, two previously
impaired semisubmersible rigs, to “Assets held for sale” in our Consolidated Balance Sheets at December 31, 2020 .
We are actively marketing both rigs for sale and expect to sell them in the first half of 2021.
10. Credit Agreements and Senior Notes
Credit Agreements
In March 2020, we terminated our $225.0 million revolving credit agreement, which was scheduled t o m ature
on October 22, 2020. At December 31, 2019 and the time of termination, there were no borro wings o u t st andin g
under the facility. We did not incur any early termination penalties in connection with the termination and wrote o ff
$0.5 million in deferred arrangement fees associated with the facility during the year ended December 31, 2020.
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On October 2, 2018, Diamond Offshore Drilling, Inc., or DODI, as the U.S. borrower, and our subsidiary
Diamond Foreign Asset Company, or DFAC, as the foreign borrower, entered into our sen ior 5 -y ear R ev olv in g
Credit Agreement with a syndicate of lenders and Wells Fargo Bank, National Association, as administrative agen t ,
for general corporate purposes, including investments, acquisitions and capital expenditures. The maximum amou nt
of borrowings available under the Revolving Credit Agreement was $950.0 million and it provided for a swin glin e
subfacility of $100.0 million and a letter of credit subfacility of $250.0 million. The obligations of DODI and DFAC
under the Revolving Credit Agreement are each guaranteed by certain subsidiaries of DODI and DFAC,
respectively, and 65% of the equity interest in DFAC is pledged as collateral for the obligations under the Revolving
Credit Agreement. The Revolving Credit Agreement was scheduled to mature on October 2, 2023.
In March 2020, we borrowed $436.0 million under the Revolving Credit Agreement.
The filing of the Chapter 11 Cases on April 26, 2020 constituted an event of default under the Revolving Credit
Agreement, and the principal and interest on outstanding borrowings thereun der b ecame im med iately d ue an d
payable. Also, as a result of the filing of the Chapter 11 Cases, we received notification on April 28, 2 0 2 0 t hat t he
commitments under our Revolving Credit Agreement had been reduced from $950 million to approximately $442.0
million, representing the amount of borrowings outstanding plus the value of a $6.0 million financial letter of credit,
which was issued in January 2020 under the Revolving Credit Agreement in support of a previously issu ed su rety
bond. The outstanding borrowings and accrued interest have been presented as “Liabilities subject to compromise”
in our Consolidated Balance Sheets at December 31, 2020. See Note 2.
At December 31, 2020, the outstanding borrowings under the Revolving Credit Agreement of $ 43 6.0 m illio n
are adjusted base rate loans that bear interest at a rate of 5.25% over the greater of (i) the prime rate, (ii) t h e f ederal
funds rate plus 0.50% and (iii) the daily one-month Eurodollar Rate plus 1.00%. The weighted average interest rate on
the combined borrowings at December 31, 2020 was 8.50%. In addition, we had a $6.0 million finan cial let t er o f
credit outstanding under the Revolving Credit Agreement, which incurs a participation fee of 6.25% per annum. The
letter of credit was drawn on by the beneficiary in January 2021 and was converted to an ad just ed b ase ra te lo an
under the Revolving Credit Agreement.
On April 26, 2020, as a result of filing the Chapter 11 Cases, we ceased accruing interest o n o ur b o rro wings
under our Revolving Credit Agreement. As a result, we did not record $21.3 million of contractual interest ex pense
related to outstanding borrowings under our Revolving Credit Agreement for the year ended December 3 1 , 2 0 20.
However, the exact amount of interest relating to the period after the Petition Date is subject to final determin atio n
in accordance with the Plan. Additionally, we wrote off $3.9 million in deferred arrangement fees associated wit h
the Revolving Credit Agreement during the year ended December 31, 2020.
Senior Notes
At December 31, 2020, our Senior Notes were comprised of the following debt issues (dollars in millions):
Aggregate
Principal
Stated
Interest Rate at
Issuance
Semiannual Interest
Payment Dates
Debt Issue
3.45% Senior Notes due 2023
7.875% Senior Notes due 2025
5.70% Senior Notes due 2039
4.875% Senior Notes due 2043
Coupon
Amount Maturity Date
$ 250.0 November 1, 2023 3.45 % 3.50 % May 1 and November 1
$ 500.0 August 15, 2025 7.875 % 8.00 % February 15 and August 15
$ 500.0 October 15, 2039 5.70 % 5.75 % April 15 and October 15
$ 750.0 November 1, 2043 4.875 % 4.89 % May 1 and November 1
Effective
The filing of the Chapter 11 Cases constituted an event of default that accelerated the Company’s o b ligat io ns
under our Senior Notes. As a result, the principal and accrued interest thereon are immediately due and payable a nd
have been presented as “Liabilities subject to compromise” in our Consolidated Balance Sheets a t December 3 1 ,
2020. However, any efforts to enforce such payment obligations are automatically stayed as a result of the filin g o f
the Chapter 11 Cases, and the creditors’ rights of enforcement in respect of the Senio r No t es are su b ject t o t he
applicable provisions of the Bankruptcy Code.
84
Upon filing of the Chapter 11 Cases, we ceased accruing interest on our senior unsecured debt. As a resu lt , we
did not record $76.7 million of contractual interest expense related to our Senior Notes for the year ended December
31, 2020. In addition, we wrote off $23.7 million in unamortized discount and debt issuance costs associated wit h
the Senior Notes during the year ended December 31, 2020.
At December 31, 2020 and 2019, the carrying value of our Senior Notes, net of unamortized discount and d ebt
issuance costs, was as follows (in thousands):
3.45% Senior Notes due 2023
7.875% Senior Notes due 2025
5.70% Senior Notes due 2039
4.875% Senior Notes due 2043
Total Senior Notes, net
December 31,
2020
2019
$ 250,000 $ 248,759
500,000 491,655
500,000 493,316
750,000 742,011
$ 2,000,000 $ 1,975,741
Senior Notes Due 2025. In August 2017, we issued $500.0 million aggregate principal a moun t o f u nsecu red
7.875% senior notes due 2025, or 2025 Notes, and received net proceeds o f $ 4 89.1 m illio n a fter d edu ct ion o f
underwriter discounts, commissions and expenses. We used the net proceeds from the 2025 No tes , t o ge ther wit h
cash on hand, to fund the redemption of our previously outstanding 5.875% Senior Notes due 2019. The 2025 Notes
are unsecured obligations of DODI, and rank equally in right of payment to all of it s ex ist in g a n d f u tu re sen io r
indebtedness, and are structurally subordinated to all existing and future obligations of our subsidiaries. We have the
right to redeem some or all of the 2025 Notes at any time or from time to time, on at least 15 days but not more than
60 days prior written notice, at the applicable redemption price specified in the governing indenture, p lu s a ccrued
and unpaid interest to, but excluding, the date of redemption.
Senior Notes Due 2023 and 2043. Our 3.45% Senior Notes due 2023 and 4.875% Senior Not es d ue 2 04 3 a re
unsecured and unsubordinated obligations of DODI, and rank equally in right of payment to all of its ex ist in g a n d
future unsecured and unsubordinated indebtedness, and are effectively subo rdinat ed t o all ex ist in g a n d f u ture
obligations of our subsidiaries. We have the right to redeem all or a portion of these notes for cash a t a ny t ime o r
from time to time, on at least 15 days but not more than 60 days prior written notice, at a make-whole red emptio n
price specified in the governing indenture (if applicable) plus accrued and unpaid interest to, but excluding, the dat e
of redemption.
Senior Notes Due 2039. Our 5.70% Senior Notes due 2039 are unsecured and unsubordinat ed o b liga tio ns o f
DODI, and rank equally in right of payment to all of its existing and future unsecured and unsubordinated
indebtedness, and are effectively subordinated to all existing and future obligations of our subsidiaries. We have th e
right to redeem all or a portion of these notes for cash at any time or from time to time, on at least 15 d ays b u t n o t
more than 60 days prior written notice, at the redemption price specified in the governing indenture plus accrued and
unpaid interest to the date of redemption.
See Note 18.
11. Commitments and Contingencies
Various claims have been filed against us in the ordinary course of business, in clu d ing cla ims b y o ff sh ore
workers alleging personal injuries. With respect to each claim or exposure, we have made an assessment, in
accordance with GAAP, of the probability that the resolution of the matter would ultimately result in a lo ss. Wh en
we determine that an unfavorable resolution of a matter is probable and such amount of loss can be determin ed , we
record a liability for the amount of the estimated loss at the time that both of these criteria are met. Our management
believes that we have recorded adequate accruals for any liabilities that may reasonably be expected to resu lt f ro m
these claims.
85
Asbestos Litigation. We are one of several unrelated defendants in lawsuits f iled in Lo u isia na st ate cou rts
alleging that defendants manufactured, distributed or utilized drilling mud containing a sbest os a nd, in o u r ca se,
allowed such drilling mud to have been utilized aboard our drilling rigs. The plaintiffs seek, among other things, a n
award of unspecified compensatory and punitive damages. The manufacture and use of asbestos-containing drillin g
mud had already ceased before we acquired any of the drilling rigs addressed in these lawsuits. We believe t hat we
are not liable for the damages asserted in the lawsuits pursuant to the terms of our 1989 asset purchase agreement
with Diamond M Corporation. We are unable to estimate our potential exposure, if any, to these lawsuits at this time
but do not believe that our ultimate liability, if any, resulting from this litigation will have a material ef f ect o n o ur
consolidated financial condition, results of operations or cash flows.
Non-Income Tax and Related Claims. We have received assessments related to, or otherwise have exposure t o ,
non-income tax items such as sales-and-use tax, value-added tax, ad valorem tax, custom duties, and o th er sim ila r
taxes in various taxing jurisdictions. We have determined that we have a probable loss for these taxes and the related
penalties and interest and, accordingly, have recorded a $13.5 million and $16.1 million liability a t December 3 1 ,
2020 and 2019, respectively. We intend to defend these matters vigorously; however, the ultimate outcome of th ese
assessments and exposures could result in additional taxes, interest and penalt ies f o r wh ich t he f ully a ssessed
amounts would have a material adverse effect on our financial condition, results of operations or cash flows.
Other Litigation. We have been named in various other claims, lawsuits or threatened actions that are incidental
to the ordinary course of our business, including a claim by one of our customers in Brazil, Petróleo Brasileiro S.A.,
or Petrobras, that it will seek to recover from its contractors, including us, any taxes, penalties, interest and fees th at
it must pay to the Brazilian tax authorities for our applicable portion of withholdin g t ax es rela ted t o Pet ro bras’
charter agreements with its contractors. We intend to defend these matters vigorously; however, litigation is
inherently unpredictable, and the ultimate outcome or effect of any claim, lawsuit or action cannot be predicted with
certainty. As a result, there can be no assurance as to the ultimate outcome of any lit iga t io n matt er. An y cla ims
against us, whether meritorious or not, could cause us to incur significant costs and expenses and require significa nt
amounts of management and operational time and resources. In the opinion of our management, no such pending o r
known threatened claims, actions or proceedings against us are expected to have a material adverse ef fect o n o u r
consolidated financial position, results of operations or cash flows.
Personal Injury Claims. Under our current insurance policies, our deductibles for marine lia b ilit y in su ran ce
coverage with respect to personal injury claims not related to named windstorms in the U.S. Gulf of Mexico, wh ich
primarily result from Jones Act liability in the U.S. Gulf of Mexico, are $5.0 million for the f irst o ccurrence and
vary in amounts ranging between $5.0 million and, if aggregate claims exceed cert ain t h reshold s, u p t o $ 100 .0
million for each subsequent occurrence, depending on the nature, severity and frequency of claims that migh t arise
during the policy year. Our deductibles for personal injury claims arising due to named windstorms in the U.S. Gu lf
of Mexico are $25.0 million for the first occurrence and vary in amounts ranging b etween $ 25 .0 m illio n a nd, if
aggregate claims exceed certain thresholds, up to $100.0 million for each subsequent occurrence, depending o n t he
nature, severity and frequency of claims that might arise during the policy year.
The Jones Act is a federal law that permits seamen to seek compensation for certain injuries during th e co urse
of their employment on a vessel and governs the liability of vessel operators and marine employers f o r t h e wo rk -
related injury or death of an employee. We engage outside consultants to assist u s in est im atin g o u r aggregat e
liability for personal injury claims based on our historical losses and utilizing various actuarial models. We allo cat e
a portion of the aggregate liability to “Accrued liabilities” based on an estimate of claims expected to be paid within
the next twelve months with the residual recorded as “Other liabilities.” At Decem ber 3 1, 2 0 20 , o ur est imat ed
liability for personal injury claims was $14.7 million, of which $5.9 million and $8.8 million were recorded in
“Accrued liabilities” and “Other liabilities,” respectively, in our Consolidated Balance Sh eets . At Decemb er 3 1 ,
2019, our estimated liability for personal injury claims was $17.4 million, of which $6.4 million and $11.0 m illio n
were recorded in “Accrued liabilities” and “Other liabilities,” respectively, in our Consolidated Balance Sheets. Th e
eventual settlement or adjudication of these claims could differ materially f rom o ur est imated a mount s d ue t o
uncertainties such as:
•
•
the severity of personal injuries claimed;
significant changes in the volume of personal injury claims;
86
•
•
•
the unpredictability of legal jurisdictions where the claims will ultimately be litigated;
inconsistent court decisions; and
the risks and lack of predictability inherent in personal injury litigation.
Purchase Obligations. At December 31, 2020, we had no purchase obligations for major rig u p gra d es o r a ny
other significant obligations, except for those related to our direct rig operations, which arise d u r in g t h e n ormal
course of business.
Services Agreement. In February 2016, we entered into a ten-year agreement with a subsidiary of Baker Hughes
Company (formerly named Baker Hughes, a GE company), or Baker Hughes, to provide services wit h resp ect t o
certain blowout preventer and related well control equipment, or Well Control Equipment, on our drillsh ip s. Su ch
services include management of maintenance, certification and reliability with respect to such eq uip men t. Fu t ure
commitments under the contractual services agreements are estimated to be approximately $39 million per y ear o r a n
estimated $210 million in the aggregate over the remaining term of the agreements. See Note 18.
In addition, we lease Well Control Equipment for our drillships under ten-year operating leases. See Note 12.
Letters of Credit and Other. We were contingently liable as of December 31, 2 0 20 in t h e amo unt o f $ 3 2.5
million under certain tax, performance, supersedeas, VAT and customs bonds and let t ers o f cred it . Agreement s
relating to approximately $24.2 million of customs, tax, VAT and supersedeas bonds can require collat eral a t an y
time, while the remaining agreements, aggregating $8.3 million, cannot require collateral except in events of default.
During the year ended December 31, 2020, a $6.0 million financial letter of cred it was issu ed o n o u r b ehalf a s
collateral in support of our outstanding surety bonds. The letter of credit was drawn on by the beneficiary in January
2021 and was converted to an adjusted base rate loan under our Revolving Credit Agreement. During 2020, we also
made cash collateral deposits of $17.5 million with respect to other bonds and letters of credit, which are recorded in
“Other assets” in our Consolidated Balance Sheets at December 31, 2020.
12. Leases and Lease Commitments
Our leasing activities primarily consist of operating leases for our corporate and shorebase offices, o f fice and
information technology equipment, employee housing, vehicles, onshore storage yards and certain rig eq u ip m ent
and tools. Our leases have terms ranging from one month to ten years, some of which include options to extend t he
lease for up to five years and/or to terminate the lease within one year.
In November 2020, we sold our corporate headquarters office building in Houston, Texas for a net pre-tax ga in
of $3.7 million and entered into a corresponding 3-year leaseback agreement for a p o rtio n o f t h e o f fice, wh ich
includes an option to terminate after two years.
Additionally, we are participants in four sa le and leaseback arrangements with a subsidiary o f B aker H u ghes
pursuant to the 2016 sale of Well Control Equipment on our drillships and corresponding agreements to lea se b ack
that equipment under ten-year operating leases for approximately $26 million per year in the aggregate with renewal
options for two successive five-year periods. At the time of the transactions with Baker Hughes, the carrying v a lue
of the Well Control Equipment exceeded the aggregate proceeds received from the sale, resulting in the recognit io n
of prepaid rent, which was being amortized over the respective terms of the leases. On January 1, 2019, as a result of
the adoption of ASU 2016-02, the aggregate remaining prepaid rent balances of $3.9 millio n a n d $ 1 0.6 m illio n ,
previously recorded as “Prepaid expenses and other current assets” and “Other assets,” respectively, were
reclassified to a right-of-use lease asset within “Other assets” in our Consolidated Balance Sheets and continue to be
amortized over the remaining terms of the leases.
In applying ASU 2016-02, we utilize an exemption for short-term leases whereby we do not record leases wit h
terms of one year or less on the balance sheet. We have also made an accounting policy election not to separate lease
components from non-lease components for each of our classes of underlying assets, except for subsea equ ipment,
which includes the Well Control Equipment discussed above. At inception, the consideration for t h e o v erall Well
Control Equipment arrangement was allocated between the lease and service components based on an estimation o f
stand-alone selling price of each component, which maximized observable inputs. The cost s associated wit h t h e
87
service portion of the agreement are accounted for separately from the cost attributab le t o t he eq uipment leases
based on that allocation and thus, are not included in our right-of-use lease asset or lease liability balances. The non-
lease components for each of our other classes of assets generally relate to maintenance, monit orin g a nd securit y
services and are not separated from their respective lease components. See Note 11.
The lease term used for calculating our right-of-use assets and lease liabilities is determined by considering t h e
noncancelable lease term, as well as any extension options that we are reasonably certain to exercise. The
determination to include option periods is generally made by considering the activity in t h e regio n o r f o r t h e rig
corresponding to the respective lease, among other contract-based and market-based f a ctors. We h a ve u sed o ur
incremental borrowing rate to discount future lease payments as the rate implicit in our leases is not readily
determinable. To arrive at our incremental borrowing rate prior to filing of the Chapter 11 Cases, we considered our
unsecured borrowings and then adjusted those rates to assume full collateralization and to factor in t h e in d iv id ual
lease term and payment structure. The incremental borrowing rate for leases entered or modified in 2020 subsequent
to the Petition Date was determined primarily based on secured borrowing rates being negotiated in rela t io n t o a
pending plan of reorganization.
Components of lease expense are as follows (in thousands):
Operating lease cost
Short-term lease cost
Variable lease cost
Total lease cost
Year Ended December 31,
2020
2019
$
$
35,964 $
832
1,465
38,261 $
35,752
3,414
504
39,670
Total operating lease expense for the year ended December 31, 2018 was $30.1 million.
Supplemental information related to leases is as follows (in thousands, except weighted-average data):
Operating cash flows used for operating leases
Right-of-use assets obtained in exchange for lease liabilities
Weighted-average remaining lease term
Weighted-average discount rate
Year Ended
December 31,
2019
2020
$ 35,057 $ 39,561
10,645 26,248
5.6 years 6.7 years
8.94 %
8.68 %
Maturities of lease liabilities as of December 31, 2020 are as follows (in thousands):
2021
2022
2023
2024
2025
Thereafter
Total lease payments
Less: interest
Total lease liability
$
33,214
32,918
32,248
31,071
29,879
21,635
180,965
(39,771 )
$ 141,194
Amounts recognized in Consolidated Balance Sheets:
Accrued liabilities
$
Other liabilities
Liabilities subject to compromise
Total operating lease liability
5,072
23,476
112,646
$ 141,194
88
Operating lease assets, including prepaid rent balances related to the Baker Hughes transaction, totaling $154.8
million and $169.2 million are included in “Other assets” in our Consolidated Balance Sheets as o f December 3 1,
2020 and 2019, respectively.
13. Related-Party Transactions
Transactions with Loews. We were party to a services agreement with Loews, or the Services Agreement,
pursuant to which Loews performed certain administrative and technical services o n o ur b ehalf . Su ch serv ices
included internal auditing services and advice and assistance with respect to obtaining insurance. Under the Services
Agreement, we were required to reimburse Loews for (i) allocated personnel cost (such as salaries, employee
benefits and payroll taxes) of the Loews personnel actually providing such services and (ii) all out -of-pocket
expenses related to the provision of such services. On April 24, 2020, our Services Agreement wit h Lo ews was
terminated by mutual agreement. We have since retained unrelated third parties to a ssist u s wit h so me o f t h ese
services, including services related to internal audit functions. We were charged $0.3 million, $0.7 million and $ 0.6
million by Loews for these support functions related to the years ended December 31, 2020, 2019 and 2018,
respectively.
14. Restructuring and Separation Costs
Prepetition Restructuring Charges. We engaged financial and legal advisors to assist us in, among other things,
analyzing various strategic alternatives to our capital structure, leading to the commencemen t o f t h e C hap ter 1 1
Cases in the Bankruptcy Court on April 26, 2020. Prior to the Petition Date, we incurred $7.4 million in lega l a n d
other professional advisor fees in connection with the consideration of restructurin g a lt ernativ es, in clu d in g t h e
preparation for filing of the Chapter 11 Cases and related matters. We have reported these amounts in “Restructuring
and separation costs” in our Consolidated Statements of Operations for the year ended December 31, 2020.
Professional fees in connection with the Chapter 11 Cases after the Petition Date are reported in
“Reorganization items, net” in our Consolidated Statements of Operations for the year ended December 3 1 , 2 0 20.
See Note 2.
Reductions in Force.
2020. In April 2020, we initiated a plan to reduce the number of employees in our world -wide organ izat ion in
an effort to restructure our business operations and lower operating costs. During t h e y ear en d ed December 3 1 ,
2020, we incurred $10.3 million, primarily for severance and related costs associated with a reduction in p erso n nel
in our corporate offices, warehouse facilities and certain of our international shorebase locations. We have rep ort ed
these amounts in “Restructuring and separation costs” in our Consolidated Statements of Operatio ns f o r t h e y ear
ended December 31, 2020.
2018. In late 2017, in response to a downturn in the offshore drilling market, combined with changes t o t h e size
and composition of our drilling fleet since 2015, our management approved and initiated a reduction in wo rk force at
our onshore bases and corporate facilities. During 2018, we incurred $5.0 million in severance and relat ed co st s f o r
redundant employees identified in 2018 in connection with the restructuring plan and paid $12.4 million in previo usly
accrued costs. During 2019, all remaining obligations under the restructuring plan were settled.
15. Income Taxes
On March 27, 2020, the President of the United States signed into law the Coronavirus Aid, Relief and
Economic Security Act, or the CARES Act. The CARES Act allows a carryback of net operating losses generated in
2018, 2019 and 2020 to each of the five preceding taxable years. As a result of the carryback, we recogn ized a t ax
benefit of $9.7 million due to a partial release of a previously recognized valuation allowance and tax rate change.
The Chapter 11 Cases may have a material impact on our tax attributes, the full ex t ent o f wh ich will n o t b e
known until a plan of reorganization is finalized. Cancellation of indebtedness income resulting from the Chapter 11
Cases may reduce our tax attributes including, but not limited to, net operating lo ss ca rryfo rward s, f oreign t ax
credits and depreciable tax basis of our offshore drilling rigs. In addition, the utilization of any remaining tax
89
attributes could potentially be limited in future periods should the plan of reorganizat ion resu lt in a n o wn ers h ip
change under Internal Revenue Code Section 382.
Several of our rigs are owned by Swiss branches of entities incorporated in the United Kingdom, or U.K., t h a t
have historically been taxed under a special tax regime pursuant to Swiss corporate income tax rules. On September
3, 2019, the Swiss federal government, along with the Canton of Zug, enacted tax legislation, which we ref er t o a s
Swiss Tax Reform, effective as of January 1, 2020. Swiss Tax Reform significantly changed Swiss corporate income
tax rules by, among other things, abolishing special tax regimes. The legislation also provides transition rules un der
which companies can maintain their current basis of taxation through January 1, 2022.
The abolition of special tax regimes will require us to determine our Swiss tax liability on a net in come b asis
beginning on January 1, 2022, thus also requiring deferred taxes to be computed on the difference between the Swiss
tax basis and U.S. GAAP basis of certain items, including property, plant and equ ipm ent. Th ere are st ill m a n y
uncertainties in the application of Swiss Tax Reform, including the values to be used to measure depreciable
property. Therefore, we have recorded a $187.0 million net deferred tax asset for the difference in basis of certain of
our rigs between Swiss tax and U.S. GAAP, offset, where appropriate, by a reserve for an uncertain tax position. As
further clarification is issued by the Swiss tax authorities, deferred tax balances and the reserv e f o r u n certain t ax
positions may need to be adjusted. The potential changes could have a material effect on our consolidated financial
statements.
In 2019, the Internal Revenue Service, or IRS, issued final regulations with respect to the calculation of the t o ll
charge associated with the deemed repatriation of previously deferred earnings of our n o n-U.S. su b sid iaries, o r
Transition Tax, in response to the Tax Cuts and Jobs Act enacted in 2017 , commonly referred to as the Tax Refo rm
Act. Based on the new regulations, we recorded a net tax benefit of $14.2 million in the seco nd q uarter o f 2 019 ,
primarily to reverse a previously recorded uncertain tax position related to the Transition Tax. C o nseq uen tly , o u r
revised net tax benefit associated with the Tax Reform Act is $34.5 million, wh ich n ow co n sist s o f (i) a $ 3 8 .0
million charge relating to the one-time mandatory repatriation of previously deferred earnings of cert ain n o n-U.S.
subsidiaries that are owned either wholly or partially by our U.S. subsidiaries, inclusive of the utilization of certain
tax attributes and (ii) a $72.5 million credit resulting from the determination and re-measurement o f o ur n et U.S.
deferred tax liabilities at the lower corporate income tax rate.
Our income tax expense is a function of the mix between our domestic and international p re -t ax ea rnin gs o r
losses, the mix of international tax jurisdictions in which we operate and recognition of valuat ion allo wances f o r
deferred tax assets for which the tax benefits are not likely to be realized. Certain of our rigs are owned and
operated, directly or indirectly, by DFAC. Our management has determined that we will n o lo n ger p erm anent ly
reinvest foreign earnings. As of December 31, 2020, we recorded $0.5 million for the withholding income tax
impact associated with the potential distribution of DFAC’s earnings. We have not p ro vid ed in co me t ax o n t h e
outside basis difference of our international subsidiaries as management does not intend to dispose of these
subsidiaries and structuring alternatives exist to mitigate any potential liability should a disposition take place.
The components of income tax expense (benefit) are as follows (in thousands):
2018
2020
(12 )
Year Ended December 31,
2019
$ (11,844 ) $ (13,810 ) $ 20,107
2
19
9,898 25,899
9,531
(1,958 ) 12,108 29,640
(7,431 ) (67,015 ) (75,279 )
(11,797 ) 10,107
(714 )
(19,228 ) (56,908 ) (75,993 )
$ (21,186 ) $ (44,800 ) $ (46,353 )
Federal – current
State – current
Foreign – current
Total current
Federal – deferred
Foreign – deferred
Total deferred
Total
90
The difference between actual income tax expense and the tax provision computed by apply in g t h e st at uto ry
federal income tax rate to income before taxes is attributable to the following (in thousands):
Year Ended December 31,
2019
2020
2018
(Loss) income before income tax expense:
U.S.
Foreign
$ (336,880 ) $ (339,072 ) $ (266,855 )
(939,210 ) (62,942 ) 40,230
$ (1,276,090 ) $ (402,014 ) $ (226,625 )
Expected income tax benefit at federal statutory rate $ (267,979 ) $ (84,423 ) $ (47,591 )
1,763
Effect of tax rate changes
—
Reorganization items
—
Post-petition interest expense
15
Effect of foreign operations
Valuation allowance
17,331 11,650 11,929
Uncertain tax positions, settlements and
adjustments relating to prior years
Other
(7,003 ) (74,168 )
—
7,871
—
(16,778 )
3,129
136,262
107,148 96,960 (15,777 )
3,308
(21,186 ) $ (44,800 ) $ (46,353 )
Income tax benefit
1,962
2,052
$
Deferred Income Taxes. Significant components of our deferred income tax assets and liabilities are as follo ws
(in thousands):
Deferred tax assets:
Net operating loss carryforwards, or NOLs
Foreign tax credits
Disallowed interest deduction
Worker’s compensation and other current
accruals
Deferred deductions
Deferred revenue
Operating lease liability
Other
Total deferred tax assets
Valuation allowance
Net deferred tax assets
Deferred tax liabilities:
Property, plant and equipment
Mobilization
Right-of-use assets
Other
Total deferred tax liabilities
Net deferred tax liability
December 31,
2020
2019
$ 285,910 $ 253,973
43,026
40,777
34,089
66,395
5,644
7,749
11,240
9,156
12,967
6,250
12,345
7,209
5,461
4,367
433,150 373,408
(203,950 ) (186,620 )
229,200 186,788
(7,422 )
(9,603 )
(937 )
(239,576 ) (225,643 )
(2,245 )
(5,461 )
(967 )
(257,538 ) (234,316 )
$ (28,338 ) $ (47,528 )
Net Operating Loss Carryforwards. As of December 31, 2020, we recorded a d ef erred t ax asset o f $ 285 .9
million for the benefit of NOL carryforwards, comprised of $217.2 million related to o u r U.S. lo sses a n d $ 68.7
million related to our international operations. Approximately $215.9 million of this deferred t ax a sset rela t es t o
NOL carryforwards that have an indefinite life. The remaining $ 70.0 million relates to NOL carryforwards in
several of our foreign subsidiaries, as well as in the U.S. Unless utilized, these NOL carryforwards will expire
between 2024 and 2038.
91
Foreign Tax Credits. As of December 31, 2020, we recorded a deferred tax asset of $34.1 million for the benefit
of foreign tax credits in the U.S., all of which will expire, unless utilized, between 2024 to 2029.
Valuation Allowances. We record a valuation allowance on a portion of our deferred tax assets not expect ed t o
be ultimately realized. During the years ended December 31, 2020, 2019 and 2018, we established valuation
allowances related to net operating losses, foreign tax credits and other deferred tax assets of $69.2 millio n , $ 3 0 .7
million and $35.2 million, respectively. During the years ended December 31, 2020, 2019 and 2 01 8, we relea sed
valuation allowances in various jurisdictions of $51.9 million, $19.0 million and $23.3 million, resp ect iv ely . Th e
valuation allowance was also reduced by a $6.2 million adjustment to ret ain ed earnin gs a t Ja nuary 1 , 2 0 1 8 in
connection with our adoption of ASU 2016-16. See Note 1 “General Information - Changes in Accounting
Principles - Income Taxes.”
As of December 31, 2020, valuation allowances aggregating $204.0 million have been record ed f o r o u r n et
operating losses, foreign tax credits and other deferred tax assets for which the tax b enefit s are n o t lik ely t o b e
realized.
Unrecognized Tax Benefits. Our income tax returns are subject to rev iew a nd ex amin atio n in t h e v ario u s
jurisdictions in which we operate, and we are currently contesting various tax assessments. We accru e f o r in come
tax contingencies, or uncertain tax positions, that we believe are not likely to b e realized . A ro llf o rward o f t h e
beginning and ending amount of unrecognized tax benefits, excluding interest and penalties, is as follows (in
thousands):
Balance, beginning of period
Additions for current year tax positions
Additions for prior year tax positions
Reductions for prior year tax positions
Reductions related to statute of limitation
expirations
Balance, end of period
For the Year Ended December 31,
2018
2019
2020
$ (118,884 ) $ (55,943 ) $ (81,864 )
(2,906 )
(100,780 ) (85,970 )
(1,559 )
(2,113 ) (20,943 )
2,944 23,267 49,175
3,653
595
$ (214,626 ) $ (118,884 ) $ (55,943 )
1,875
The addition for current year tax positions in 2020 is due to a change in Switzerland tax legislation enacted in
2019. Due to the uncertainties regarding the application of Swiss Tax Reform, including the v alu es t o b e u sed t o
measure depreciable property, a liability for an uncertain tax position was recorded in the amount of $ 100.8 millio n
in 2020 and $ 86.2 million in 2019. The $23.3 million reduction in 2019 for prior year tax positions is mainly due to
reversal of an uncertain tax position recorded for the one-time mandatory repatriation provision of the Tax R efo rm
Act, following final regulations issued by the IRS in June 2019.
The $20.9 million addition for prior year tax positions in 2018 , as well as the $49.2 million reduction for p rio r
year tax positions are all primarily due to uncertainty associated with the enactment o f t he Tax R ef orm Act a nd
subsequent clarification issued by the IRS related to the positions in question.
At December 31, 2020, $0.6 million, $193.2 million and $56.3 million of the net lia b ilit y f o r u ncertain t ax
positions were reflected in “Other assets,” “Deferred tax liability” and “Other liabilities,” respectively , in our
Consolidated Balance Sheets. At December 31, 2019, $0.5 million, $91.1 millio n a nd $ 5 8.3 millio n o f t h e n et
liability for uncertain tax positions were reflected in “Other assets,” “Deferred tax liability” and “Other liabilit ies,”
respectively, in our Consolidated Balance Sheets. Of the net unrecognized tax benefits at December 31, 2020, 2 01 9
and 2018, $249.0 million, $148.8 million and $81.6 million, respectively, would affect t h e ef fectiv e t ax ra tes if
recognized.
At December 31, 2020, the amount of accrued interest and penalties related to uncertain tax positions was $ 6 .0
million and $19.0 million, respectively. At December 31, 2019, the amount of accrued interest and penalties rela ted
to uncertain tax positions was $4.0 million and $16.5 million, respectively.
92
Interest expense recognized during the years ended December 31, 2020, 2019 and 2018 related to uncertain t ax
positions was $1.9 million, $1.0 million and $0.1 million, respectively. Penalties recognized during the years en d ed
December 31, 2020, 2019 and 2018 related to uncertain tax positions were $1.1 million, $ 0 .3 m illio n a nd $ (0 .6)
million, respectively.
We expect the statute of limitations for the 2015 through 2017 tax years to expire in 2021 f or v ario u s o f o u r
subsidiaries operating in Mexico, Trinidad and the United States. We anticipate that the related u n recogn ized t ax
benefit will decrease by $4.5 million at that time.
Tax Returns and Examinations. We file income tax returns in the U.S. federal jurisdiction, various state
jurisdictions and various foreign jurisdictions. Tax years that remain subject to examination by these j u risdict ion s
include the year 2000 and the years 2009 to 2019. We are currently under audit in Australia, Brazil, Egypt,
Equatorial Guinea, Malaysia, Mexico and Romania. We do not anticipate that any adjustments resulting from the tax
audit of any of these years will have a material impact on our consolidated results of operations, financial condit io n
or cash flows.
16. Employee Benefit Plans
Defined Contribution Plans
We maintain defined contribution retirement plans for our U.S., U.K., and third -cou ntry n atio nal (o r TC N)
employees. The plan for our U.S. employees, or the 401k Plan, is designed to qualify under Sectio n 4 01(k ) o f t he
Internal Revenue Code of 1986, as amended, or the Code. Under the 401k Plan, each participant may elect t o d efer
taxation on a portion of his or her eligible earnings, as defined by the 401k Plan, by directing his or her employer t o
withhold a percentage of such earnings. A participating employee may also elect to make after-tax contributio ns t o
the 401k Plan. During 2020, 2019 and 2018, we matched 100% of the first 5% of each employee’s qualifying annual
compensation contributed to the 401k Plan on a pre-tax or Roth elective deferral b a sis in ea ch resp ectiv e y ear.
Participants are fully vested in the employer match immediately upon enrollm ent in t h e 4 01 k Pla n . We cea sed
matching contributions to the 401k Plan effective November 2020. For the years ended December 3 1 , 2 0 20, 2 0 19
and 2018, our provision for contributions was $6.2 million, $9.1 million and $8.0 million, respectively.
The defined contribution retirement plan for our U.K. employees provides that we make annual contributions in
an amount equal to the employee's contributions generally up to a maximum percentage of the employee's d efin ed
compensation per year. Our contribution during 2020, 2019 and 2018 for employees working in the U.K. sect o r o f
the North Sea was 6% of the employee’s defined compensation. Our provision for contributions was $ 1 .8 m illio n ,
$2.1 million and $1.5 million for the years ended December 31, 2020, 2019 an d 2 01 8, resp ect ively . Ef fectiv e
December 2020, we reduced our matching contribution to 4% of the employee’s defined compensation.
The defined contribution retirement plan for our TCN employees, or International Savings Plan, is similar to the
401k Plan. During 2020, 2019 and 2018, we matched 5% of each employee’s co mpensat ion co ntrib ut ed t o t he
International Savings Plan in each respective year. We ceased matching contributions to the Internatio nal Sa vin gs
Plan effective November 2020. Our provision for contributions to the plan was $0.2 million in 2020 and $0.4 million
in each of the years ended December 31, 2019 and 2018.
93
Deferred Compensation and Supplemental Executive Retirement Plan
Our Amended and Restated Diamond Offshore Management Company Supplemental Ex ecut ive R etirement
Plan, or Supplemental Plan, provides benefits to a select group of our management or other h igh ly co mpensat ed
employees to compensate such employees for any portion of the applicable percentage of the base salary
contribution and/or matching contribution under the 401k Plan that could not be contributed to that plan because o f
limitations within the Code. We ceased matching contributions to the Supplemental Plan effectiv e January 2 020 .
Our provision for contributions to the Supplemental Plan for 2020, 2019 and 2018 was $0, $0.1 m illio n a nd $ 0 .1
million, respectively.
17. Segments and Geographic Area Analysis
Although we provide contract drilling services with different types of offshore drilling rigs a n d a lso p rov ide
such services in many geographic locations, we have aggregated these operations into one reportable segment based
on the similarity of economic characteristics due to the nature of the revenue-earning pro cess as it rela t es t o t he
offshore drilling industry over the operating lives of our drilling rigs.
Our drilling rigs are highly mobile and may be moved to other markets throughout th e wo rld in resp o n se t o
market conditions or customer needs. At December 31, 2020, our active drilling rigs were lo ca t ed o ffshore t h ree
countries in addition to the United States. Revenues by geographic area are presented by attributing revenues t o t h e
individual country or areas where the services were performed.
The following tables provide information about disaggregated revenue by eq uipment -typ e a nd cou ntry (in
thousands):
United States
Brazil
United Kingdom
Australia
Malaysia (2)
Total
United States
Brazil
United Kingdom
Australia
Total
Total
Contract
Drilling
Revenues (1)
Year Ended December 31, 2020
Revenues
Related to
Reimbursable
Expenses
$
$
321,150 $
155,436
112,121
63,876
40,170
692,753 $
13,262 $
(18 )
8,929
13,271
5,490
40,934 $
Total
334,412
155,418
121,050
77,147
45,660
733,687
Total
Contract
Drilling
Revenues (1)
Year Ended December 31, 2019
Revenues
Related to
Reimbursable
Expenses
$
$
507,759 $
191,519
149,724
85,932
934,934 $
7,881 $
83
14,036
23,710
45,710 $
Total
515,640
191,602
163,760
109,642
980,644
(1) Contract drilling revenue for 2020 and 2019 was entirely attributable to our floater rigs (drillships and
semisubmersibles).
(2) Revenue earned by the Ocean Monarch during a standby period in Malaysia while awaiting clearance to b egin
operations in Myanmar waters.
94
United States
Brazil
United Kingdom
Australia
Malaysia
Other countries (2)
Total
Year Ended December 31, 2018
Total
Contract
Drilling
Revenues
Revenues
Related to
Reimbursable
Expenses
Jack-up
Rigs (1)
Floater Rigs
$ 628,574 $ 8,413 $ 636,987 $
— 170,839
170,839
84,749
—
84,749
53,170
—
53,170
— 114,228
114,228
—
—
—
$ 1,051,560 $ 8,413 $ 1,059,973 $
Total
7,436 $ 644,423
(26 ) 170,813
92,487
7,738
60,782
7,612
(210 ) 114,018
692
692
23,242 $ 1,083,215
(1) Loss-of-hire insurance proceeds related to early contract terminations for two jack-up rigs that were disposed of
in previous years.
(2) Countries that individually comprise less than 5% of total revenues.
The following table presents the locations of our long-lived tangible assets by country as of December 31, 2020,
2019 and 2018. A substantial portion of our assets is comprised of rigs that are mobile, and therefore asset location s
at the end of the period are not necessarily indicative of the geographic distribution of the earnin gs gen erat ed b y
such assets during the periods and may vary from period to period due to the relocation of rigs . I n circu m stances
where our drilling rigs were in transit at the end of a calendar year, they have been presented in t h e t ab les b elo w
within the country in which they were expected to operate (in thousands).
Drilling and other property and equipment, net:
United States
International:
Australia
Spain
United Kingdom
Myanmar
Brazil
Singapore
Malaysia
Other countries (2)
Total
December 31,
2020 (1)
2019
2018 (1)
$ 2,162,488 $ 2,227,934 $ 2,245,989
—
—
722,389 570,964 242,929
686,436
—
248,500 1,061,585 1,083,540
—
207,451
87,543 883,607 923,355
5,819 404,420 366,798
2,037 318,191
3,420
2,281
1,960,321 2,924,894 2,938,233
$ 4,122,809 $ 5,152,828 $ 5,184,222
29
2,154
(1) During 2020 and 2018, we recorded aggregate impairment losses of $842.0 million and $27.2 million,
respectively, to write down certain of our drilling rigs and related equipment with indicators of im pairment t o
their estimated recoverable amounts.
(2) Countries with long-lived assets that individually comprise less than 5% of total drilling and other property an d
equipment, net of accumulated depreciation.
95
Major Customers
Our customer base includes major and independent oil and gas companies and government -owned oil
companies. Revenues from our major customers for the years ended December 3 1 , 2 0 20 , 2 01 9 an d 2 0 18 t hat
contributed more than 10% of our total revenues are as follows:
Customer
Petróleo Brasileiro S.A.
BP
Occidental (formerly Anadarko)
Hess Corporation
Shell
18. Subsequent Event
Year Ended December 31,
2019
2018
2020
21.2 %
20.6 %
20.1 %
10.7 %
10.1 %
19.5 %
3.1 %
20.6 %
28.9 %
5.2 %
15.8 %
10.5 %
33.8 %
25.0 %
1.0 %
On January 22, 2021, the Debtors entered into the PSA with certain holders of the Company’s Sen io r No t es
party thereto (collectively, the Consenting Noteholders), and certain holders of the RCF Claims under the
Company’s Revolving Credit Agreement (collectively, the Consenting RCF Lenders and, together with the
Consenting Noteholders, the Consenting Stakeholders). Concurrently, the Debtors entered into the Backstop
Agreement (as defined in the PSA) with certain holders of Senior Notes and also en tered in t o t h e C ommitment
Letter (as defined below) with certain holders of RCF Claims.
The PSA requires the Consenting Stakeholders to support the proposed financial restructuring (or the
Restructuring) of the Debtors consistent with the terms and conditions set forth in the Plan, the Backstop Agreement
and the commitment letter for the Exit Revolving Credit Facility, as defined below, (or the C o mmitment Let ter).
The Debtors have agreed to seek approval of the Plan and complete their restructuring efforts. The PSA also
provides for termination by the parties upon the occurrence of certain events.
The PSA and the Plan contemplate a comprehensive deleveraging and restructuring of the Company’s b alance
sheet. The Company entered into the PSA with holders of over 70% of each o f t he Sen ior No t es a nd t h e R CF
Claims, with both groups of stakeholders agreeing to provide exit financing. The key terms of the PSA and the Pla n
include the following:
•
Entrance into new exit financing facilities upon the Debtors’ emergence consisting of t h e f ollo win g ,
which is described further below under “– Exit Facilities”:
(a) a $300 million to $400 million aggregate principal amount first lien, first out ex it rev o lv ing
credit facility, or the Exit Revolving Credit Facility;
(b) a $100 million to $200 million aggregate principal amount first lien, last o u t ex it t erm lo an
facility, or the Exit Term Loan Facility; and
(c) $110 million aggregate principal amount in first lien, last out exit n o t es, o r t h e Ex it No t es
($75.0 million of which will be issued upon emergence and $35.0 million o f wh ich will b e
available through a delayed draw mechanism, in each case, as more fully described b elow in
“– Exit Facilities”), plus $9.9 million aggregate principal amount of any additional Exit Notes
issued on account of the Commitment Premium (as defined in the Backstop Agreement ) , a s
more fully described below in“– Exit Facilities”;
•
•
•
•
Equitization of funded debt to the holders of the Senior Notes for their pro rata share o f 7 0% o f t h e
reorganized Company’s equity;
Payment in full of all other secured and priority claims;
Payment in full or reinstatement of all general unsecured claims (including trade creditors);
Cancellation of all existing common equity interests; and
96
•
Adjustment, reinstatement or discharge of intercompany claims at the Debtor’s discretion in
consultation with the Ad Hoc Group (as defined in the Plan).
The Plan provides, among other things, that the following holders of claims receive the following reco very o n
the emergence date (unless such holder agrees to less favorable treatment):
•
Holders of the RCF Claims will be refinanced by the Exit Revolving Credit Facility and the Exit Term
Loan Facility, and holders of RCF Claims will receive either:
(a) if such holder elects to participate in the Exit Revolving Credit Facility, a combination o f it s
pro rata share of approximately $275 million to $280 million in cash (or the RCF Cash
Paydown), its pro rata share of up to $100 million of funded loans under the Exit R evo lvin g
Credit Facility, and, to the extent its claims are not satisfied in full by such cash payment a nd
funded loans under the Exit Revolving Credit Facility, a pro rata share of t he f un ded lo ans
under the Exit Term Loan Facility; or
(b) if such holder does not elect to participate in the Exit Revolving Credit Facility, a
combination of its pro rata share of the funded loans under the Exit Term Loan Facility and/or
cash to the extent the RCF Cash Paydown has not been fully allo cat ed t o h old ers o f R C F
Claims that elect to participate in the Exit Revolving Credit Facility. The exact amount of th e
RCF Cash Paydown is subject to finalizing the amount of post-petition interest due to holders
of RCF Claims on the emergence date;
Holders of Senior Notes will receive their pro rata share of 70% of the reorganized Company’s equity,
subject to dilution by the MIP Equity Shares and the New Warrants (each as defined in the Plan). Th e
remaining 30% of the reorganized Company’s newly issued equity will be issued to holders of Sen io r
Notes purchasing or committing to purchase, as applicable, the Exit No tes p ursuant t o (a ) certain
private placements (or the Private Placements), set forth in the Backstop Agreement and (b) two f u lly
backstopped rights offerings (or the Rights Offerings), subject to dilution by the MIP Eq u ity Sh ares
and the New Warrants;
Holders of general unsecured claims will be paid in full in the ordinary course of business, have t heir
claims reinstated, or otherwise be unimpaired pursuant to the terms of the Plan;
The Company’s existing common equity will be cancelled and will be of no further force or effect;
Holders of the Company’s existing common equity will receive their pro rata share of the New
Warrants, which, in the aggregate, are exercisable into 7% of the reorganized C ompany ’s common
equity, subject to dilution by the MIP Equity Shares. The New Warrants will have an exercise p eriod
of five years and will include ride-through protection for the duration of t h eir t erm in t h e ev ent o f
a stock-for-stock merger involving the reorganized Company;
Eligible holders of the Senior Notes that participate in the Rights Offerings with resp ect t o t h e Ex it
Notes will also receive, in consideration for its participation in the Rights Offerings, its pro rata sh are
of 18.75% of the reorganized Company’s newly issued common equity, subject to dilution by the New
Warrants and the MIP Equity Shares;
Each eligible Consenting Noteholder that is party to the Backstop Agreement, or the Primary Priv a te
Placement Investors, that participates in the Private Placements with respect to the Exit Notes will also
receive, in consideration for its participation in the Private Placements, its pro rata share of 11.25% o f
the reorganized Company’s newly issued common equity, subject to dilution by the New Warrants and
the MIP Equity Shares.
•
•
•
•
•
•
The PSA contains certain covenants on the part of the Debtors and the Consenting Stakeholders, including t h at
the Consenting Stakeholders shall, among other things, support and take all commercially reasonable actions that are
necessary and appropriate to facilitate the confirmation of the Plan and consummation of the Debtors’ restructurin g
in accordance with the PSA. The PSA further provides that the Consenting Stakeholders shall have the right, but not
the obligation, to terminate the PSA upon the occurrence of certain events, including the failure o f t h e Deb tors t o
achieve certain milestones.
97
The Company is subject to numerous conditions precedent to its emergence from Chapter 11 protect io n. Su ch
conditions include the completion of restructuring steps described in the PSA and the Plan, the co mplet ion o f t h e
Exit Revolving Credit Facility and the Exit Term Loan Facility, and the issuance o f Ex it No t es p ursuant t o t he
Rights Offerings Procedures and the Backstop Agreement, among other governmental and court-ordered
administrative conditions.
Exit Facilities
As noted above, the PSA contemplates that the reorganized Company will enter into the Exit Revolving Cred it
Facility, the Exit Term Loan Facility and the Exit Notes upon emergence.
The Exit Revolving Credit Facility will be fully committed, with up to $100 millio n drawn as of the emergence
date. The Exit Revolving Credit Facility will mature in 2026. Interest on the Exit Revolv ing C red it Fa cilit y will
accrue at LIBOR + 425 bps and is payable in cash.
In connection with the Exit Revolving Credit Facility, the Debtors have secured co mmitment s f rom certain
holders of RCF Claims pursuant to the Commitment Letter that ensures at least $300 million in aggregate prin cip al
amount of the Exit Revolving Credit Facility is fully committed to upon the Debtors’ emergence from t h e C h apter
11 Cases in accordance with the PSA and the Plan. As consideration for entering into the Commitmen t Let ter a nd
providing such commitments, the Debtors will pay to the Commitment Parties (as d efin ed in t h e C ommit men t
Letter) a commitment fee of approximately $3.5 million payable in kind in the form of additional drawn
commitments under the Exit Revolving Credit Facility, which shall increase both the amount o f d rawn an d t o tal
commitments thereunder, in exchange for providing such new money commitments.
The Exit Term Loan Facility will mature in 2027. At the reorganized Company’s option, int erest o n t h e Ex it
Term Loan Facility will accrue at a cash pay rate of LIBOR + 600 bps, a payment in kind, or PIK, rate of LI BOR +
1000 bps, or a 50/50 combined cash and PIK rate of LIBOR + 800 bps. The Exit Term Loan Facility will ran k p a ri
passu with the Exit Notes.
As of the emergence date, $75.0 million of the Exit Notes will be issued and outstanding ex clu ding t h e $ 9 .9
million of Exit Notes to be issued on account of the Commitment Premium (as defined in the Backstop Agreement),
while $35.0 million of the Exit Notes will remain fully committed but undrawn as of the emergence date an d will b e
available through a delayed draw mechanism pursuant to the terms of the Exit Notes (o r t h e Delay ed Dra w Ex it
Notes). The reorganized Company will pay a ticking fee of 3% per annum on the aggregate principal amount of any
undrawn Delayed Draw Exit Notes, which shall be payable in cash semi-annually in arrears commencing on the date
that is six months from the Debtors’ emergence from the Chapter 11 Cases until the earliest of (i) t h e d a te o f t h e
issuance of the Delayed Draw Exit Notes, (ii) the date that is 24 months prior to the scheduled maturity of t h e Ex it
Notes and (iii) the date that the Delayed Draw Subscription Agreement (as defined in the Backstop Agreement) is
terminated in accordance with its terms.
The Exit Notes will mature in 2027. At the reorganized Company’s option, interest on the Exit Notes will
accrue at a cash pay rate of 9.0%, a PIK rate of 13.0%, or a 50/50 combin ed cash a nd PI K ra t e o f 1 1 .0%. Th e
Company may redeem the Exit Notes, in whole or in part, at its option at any time o n at least 15 days but n o t m ore
than 60 days prior written notice at the applicable redemption prices set forth in the relevant indenture, subject to the
limitations on the Company’s ability to exercise such redemption contained in the Exit Revolvin g C red i t Facilit y
and the Exit Term Loan Facility.
Backstop Commitments and Rights Offering
In connection with the Exit Notes, the Debtors have secured commitments from certain holders o f t h e Sen io r
Notes pursuant to the Backstop Agreement that ensures the Exit Notes are fully funded or commit ted t o u p on t h e
Debtors’ emergence from the Chapter 11 Cases pursuant to (a) the Private Placements set f ort h in t h e B ackstop
Agreement for Exit Notes in an aggregate principal amount of $41,250,000 and (b) the Rights Offerings pursuant to
which eligible holders of Senior Notes will receive subscription rights to purchase or commit to purchase
$68,750,000 of the Exit Notes in accordance with and pursuant to the Plan, subject to the terms and conditions of the
98
Rights Offering Procedures (as defined in the PSA). Any Exit Notes not subscribed to by t he eligib le h o ld ers o f
Senior Notes in the Rights Offerings will be funded or committed to upon the Debtor’s emergence from the Chapter
11 Cases by the Commitment Parties (as defined in the Backstop Agreement). As consideration for entering into th e
Backstop Agreement and providing the commitments in the Private Placements and Rights Offerings, t h e Deb to rs
will pay to the Financing Parties (as defined in the Backstop Agreement) a commitment premium equal to 9 .0 % o f
the aggregate amount of commitments provided by the respective Backstop Parties (as d efin ed in t h e B ackstop
Agreement) under the Backstop Agreement, payable in kind in the form of additional Exit Notes. Eligible holders of
Senior Notes that elect to join the Backstop Agreement are eligible to participate in the Private Placements, but will
not receive a pro rata portion of the Commitment Premium.
The Plan, the Rights Offering Procedures, the Backstop Agreement, and the Commitment Letter remain subject
to approval by the Bankruptcy Court. Accordingly, no assurance can be given that the Restructuring d escrib ed in
the PSA and the Plan will be consummated.
Pressure Control by the Hour Contracts
The Debtors will make a determination on whether to assume or reject the PCbtH Contracts (as defined in t h e
Plan) following the conclusion of the PCbtH Litigation (as defined in the Plan), unless the applicable parties are able
to reach a consensual resolution prior to the conclusion of the litigation.
Disclosure Statement
On January 22, 2021, the Debtors filed the Plan and a related disclosure statement (or the Disclosure
Statement), with the Bankruptcy Court. On January 23, 2021, the Debtors also filed a motion seeking B a nkru ptcy
Court approval of the Debtors’ Disclosure Statement prepared in connection with soliciting votes to accept the Pla n
and a separate motion seeking authority to enter into the Backstop Agreement a nd t h e C ommit ment Let ter an d
approval of the procedures to conduct the Rights Offerings. A hearing on such motions is scheduled f o r Feb ruary
26, 2021 at 9:30 a.m. (Central Time) before the Bankruptcy Court.
The foregoing descriptions of the PSA, the Backstop Agreement, and the Commitment Letter do not purport t o
be complete and are qualified in their entirety by reference to the PSA, includin g t h e Backst op Agreement , t h e
Commitment Letter and the other exhibits thereto, a copy of which is filed as Exhibit 10.23 to this report.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
Not applicable.
Item 9A. Controls and Procedures
Disclosure Controls and Procedures
We maintain a system of disclosure controls and procedures that are designed to ensure information required t o
be disclosed by us in reports that we file or submit under the federal securities laws, including this report, is
recorded, processed, summarized and reported on a timely basis. These disclosure controls and procedures in clu de
controls and procedures designed to ensure that information required to be disclosed by us under the federal
securities laws is accumulated and communicated to our management on a timely basis to allow decisions regardin g
required disclosure.
99
Our Chief Executive Officer, or CEO, and Chief Financial Officer, or CFO, participated in an evaluation by our
management of the effectiveness of our disclosure controls and procedures (a s defined in Exchange Act Rules 1 3a -
15(e) and 15d-15(e)) as of December 31, 2020. Based on their participation in that evaluation, o u r C EO a nd C FO
concluded that our disclosure controls and procedures were effective as of December 31, 2020.
Internal Control Over Financial Reporting
Management’s Annual Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate in t ernal co n trol o v er f in ancial
reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for Diamond Of f shore Drillin g, I n c. Ou r
internal control system was designed to provide reasonable assurance to our management and Board o f Direct o rs
regarding the preparation and fair presentation of published financial statements.
There are inherent limitations to the effectiveness of any control system, however well designed, includin g t h e
possibility of human error or mistakes, faulty judgments in decision-making and t h e p o ssib le circu mvent ion o r
overriding of controls. Further, the design of a control system must reflect the fact that there are resource constraints,
and the benefits of controls must be considered relative to their costs. Management m ust m ake j ud gment s wit h
respect to the relative cost and expected benefits of any specific control measure. The design o f a con tro l sy st em
also is based in part upon assumptions and judgments made by management about the likelihood of futu re event s,
and there can be no assurance that a control will be effective under all potential future conditions. As a result , ev en
an effective system of internal controls can provide no more than reasonable assurance wit h resp ect t o t he f air
presentation of financial statements and the processes under which they were prepared. B ecau se o f it s in h erent
limitations, internal control over financial reporting may not prevent or detect misstatements. Also, p ro j ectio ns o f
any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because
of changes in conditions, or that the degree of compliance with the policies and procedures may deteriorate.
Our management assessed the effectiveness of our internal control over financial reporting as of December 3 1 ,
2020. In making this assessment, our management used the criteria set f o rth b y t h e C ommit tee o f Sp onso ring
Organizations of the Treadway Commission (COSO) in Internal Control – Integrated Framework (2013). Based o n
this assessment our management believes that, as of December 31, 2020, our internal control over financial reporting
was effective.
There were no changes in our internal control over financial reporting identified in connection with the
foregoing evaluation that occurred during our fourth fiscal quarter of 2020 that have mat erially a ffected, o r a re
reasonably likely to materially affect, our internal control over financial reporting.
Item 9B. Other Information.
Not applicable.
100
Item 10. Directors, Executive Officers and Corporate Governance.
PART III
Information about our executive officers is reported under the caption “ I nformatio n Ab o ut Ou r Ex ecu tiv e
Officers” in Item 1 of Part I of this report.
Additional information required by this item will be provided in our proxy st atement f or o u r 2 0 21 An n ual
Meeting of Stockholders or in an amendment to this Annual Report on Form 10-K/A to be filed no later t h an Ap ril
30, 2021.
Item 11. Executive Compensation.
Information required by this item will be provided in our proxy statement for o u r 2 0 21 An n ual M eet in g o f
Stockholders or in an amendment to this Annual Report on Form 10-K/A to be filed no later than April 30, 2021.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters.
Information required by this item will be provided in our proxy statement for o u r 2 0 21 An n ual M eet in g o f
Stockholders or in an amendment to this Annual Report on Form 10-K/A to be filed no later than April 30, 2021.
Item 13. Certain Relationships and Related Transactions, and Director Independence.
Information required by this item will be provided in our proxy statement for o u r 2 0 21 An n ual M eet in g o f
Stockholders or in an amendment to this Annual Report on Form 10-K/A to be filed no later than April 30, 2021.
Item 14. Principal Accounting Fees and Services.
Information required by this item will be provided in our proxy statement for o u r 2 0 21 An n ual M eet in g o f
Stockholders or in an amendment to this Annual Report on Form 10-K/A to be filed no later than April 30, 2021.
.
101
PART IV
Item 15. Exhibits and Financial Statement Schedules.
(a) Index to Financial Statements and Financial Statement Schedules
(1) Financial Statements
Page
Report of Independent Registered Public Accounting Firm ................................................................................ 53
Consolidated Balance Sheets.................................................................................................................................. 57
Consolidated Statements of Operations ................................................................................................................. 58
Consolidated Statements of Comprehensive Income or Loss .............................................................................. 59
Consolidated Statements of Stockholders’ Equity ................................................................................................ 60
Consolidated Statements of Cash Flows................................................................................................................ 61
Notes to Consolidated Financial Statements ......................................................................................................... 62
(b) Exhibits
Exhibit No.
Description
3.1
3.2
4.1
4.2
4.3
4.4
Amended and Restated Certificate of Incorporation of Diamond Offshore Drilling, Inc. (incorporated by
reference to Exhibit 3.1 to our Quarterly Report on Form 10-Q for the quarterly period ended Ju ne 3 0,
2003).
Amended and Restated By-laws (as amended through July 23, 2018) of Diamond Offshore Drilling, Inc.
(incorporated by reference to Exhibit 3.1 to our Current Report on Form 8 -K filed July 24, 2018).
Indenture, dated as of February 4, 1997, between Diamond Offshore Drilling, Inc. and The Bank of New
York Mellon Trust Company, N.A. (successor to The Bank of New York Mellon which was previou sly
known as The Bank of New York) (as successor to The Chase Manhattan Bank), as Trustee
(incorporated by reference to Exhibit 4.1 to our Annual Report on Form 10-K for the fiscal y ear en d ed
December 31, 2001).
Seventh Supplemental Indenture, dated as of October 8, 2009, between Diamond Offshore Drilling, Inc.
and The Bank of New York Mellon Trust Company, N.A. (successor to The Bank of New York
Mellon), as Trustee (incorporated by reference to Exhibit 4.2 to our Current Report on Form 8 -K f iled
October 8, 2009).
Eighth Supplemental Indenture, dated as of November 5, 2013, between Diamond Of fshore Drillin g,
Inc. and The Bank of New York Mellon Trust Company, N.A. (successor to Th e B ank o f New Yo rk
Mellon), as Trustee (incorporated by reference to Exhibit 4.2 to our Current Report on Form 8 -K f iled
November 5, 2013).
Ninth Supplemental Indenture, dated as of August 15, 2017, between Diamond Offshore Drillin g, I n c.
and The Bank of New York Mellon Trust Company, N.A., as Trustee (incorp orated b y ref erence t o
Exhibit 4.2 to our Current Report on Form 8-K filed August 16, 2017).
10.1+ Amended and Restated Diamond Offshore Management Company Supplemental Executive Retirement
Plan effective as of January 1, 2007 (incorporated by reference to Exhibit 10.4 to our Annual Report o n
Form 10-K for the fiscal year ended December 31, 2006).
10.2+ Diamond Offshore Management Bonus Program, as amended and restated, and dated a s o f December
31, 1997 (incorporated by reference to Exhibit 10.6 to our Annual Report on Form 10-K f o r t h e f iscal
year ended December 31, 1997).
10.3+ Diamond Offshore Drilling, Inc. Equity Incentive Compensation Plan (inco rporat ed b y ref erence t o
Exhibit B attached to our definitive proxy statement on Schedule 14A filed April 1, 2014 ).
102
Exhibit No.
Description
10.4+ Form of Stock Option Certificate for grants to executive officers, ot h er em plo yees a nd co nsult ant s
pursuant to the Equity Incentive Compensation Plan (incorporated by reference to Exhib it 1 0.1 t o o u r
Current Report on Form 8-K filed October 1, 2004).
10.5+ Form of Stock Option Certificate for grants to non-employee directors pursuant to the Equity Incent iv e
Compensation Plan (incorporated by reference to Exhibit 10.2 to our Current Report on Form 8 -K f iled
October 1, 2004).
10.6+ Form of Award Certificate for stock appreciation right grants to the Company’s executive officers, other
employees and consultants pursuant to the Equity Incentiv e C ompensat io n Pla n (in co rpo rat ed b y
reference to Exhibit 10.1 to our Current Report on Form 8-K filed April 28, 2006).
10.7+ Form of Award Certificate for stock appreciation right grants to non-employee directors pursuant to t he
Equity Incentive Compensation Plan (incorporated by reference to Exhibit 10.1 to our Quarterly Report
on Form 10-Q for the quarterly period ended March 31, 2007).
10.8+ Form of Award Certificate for grants of Performance Restricted Stock Units under the Equity Incent iv e
Compensation Plan (incorporated by reference to Exhibit 10.5 to our Quarterly Report Fo rm 1 0 -Q f or
the quarterly period ended March 31, 2014).
10.9+ Specimen Agreement for grants of restricted stock units to officers under the Equity Incentive
Compensation Plan (incorporated by reference to Exhibit 10.1 to our Current Report on Form 8 -K f iled
March 30, 2015).
10.10+ Specimen Agreement for grants of restricted stock units to the Chief Executive Officer under the Equit y
Incentive Compensation Plan (incorporated by reference to Exhibit 10.2 to our Current Report on Fo rm
8-K filed March 30, 2015).
10.11+ Specimen agreement for grants of restricted stock units to executive officers under the Equity Incent iv e
Compensation Plan (incorporated by reference to Exhibit 10.4 to our Current Report on Form 8-K f iled
March 14, 2018).
10.12+ Specimen agreement for grants of restricted stock units to the Chief Executive Officer under the Equ it y
Incentive Compensation Plan (incorporated by reference to Exhibit 10.5 to our Current Report on Fo rm
8-K filed March 14, 2018).
10.13+ The Diamond Offshore Drilling, Inc. Incentive Compensation Plan (Amended and Restated as of
January 1, 2018, as amended June 28, 2018) (incorporated by reference to Exhibit 10.1 to our Quarterly
Report Form 10-Q for the quarterly period ended June 30, 2018).
10.14+ Specimen agreement for cash incentive awards to executive officers under the Incentive Compensatio n
Plan (incorporated by reference to Exhibit 10.2 to our Current Report on Fo rm 8 -K f iled M arch 1 4 ,
2018).
10.15+ Specimen agreement for performance cash incentive awards to the Chief Executive Of ficer u nd er t h e
Incentive Compensation Plan (incorporated by reference to Exhibit 10.3 to our Current Report on Fo rm
8-K filed March 14, 2018).
10.16 5-Year Revolving Credit Agreement, dated as of October 2, 2018, among Diamond Offshore Drillin g,
Inc., as the U.S. borrower, Diamond Foreign Asset Company, as the foreign borrower, Wells Fargo
Bank, National Association, as administrative agent and swingline lender, t h e issu in g b a nks n amed
therein and the lenders named therein (incorporated by reference to Exhibit 10.1 to our Curren t R epo rt
on Form 8-K filed October 4, 2018).
10.17+ Specimen Cash Incentive Award Agreement for executive officers under the Diamond Offshore
Drilling, Inc. Incentive Compensation Plan (Amended and Restated as of January 1, 2018, as amended
on June 28, 2018) (incorporated by reference to Exhibit 10.1 to our Current Report on Fo rm 8 -K f iled
March 20, 2019).
103
Exhibit No.
10.18+ Specimen Cash Incentive Award Agreement for the Chief Executive Officer under the Diamond
Offshore Drilling, Inc. Incentive Compensation Plan (Amended and Restated as of January 1, 2 0 18 , a s
amended on June 28, 2018) (incorporated by reference to Exhibit 10.2 to our Current Report on Form 8 -
K filed March 20, 2019).
Description
10.19+ Specimen Restricted Stock Unit Award Agreement for executive officers under the Diamond Of fshore
Drilling, Inc. Equity Incentive Compensation Plan (incorporated by reference t o Ex hib it 1 0 .3 t o o u r
Current Report on Form 8-K filed March 20, 2019).
10.20+ Specimen Restricted Stock Unit Award Agreement for the Chief Executive Officer under the Dia mon d
Offshore Drilling, Inc. Equity Incentive Compensation Plan (incorporated by reference to Exhib it 1 0.4
to our Current Report on Form 8-K filed March 20, 2019).
10.21+ Employment Agreement, dated as of March 20, 2020, between Diamond Offshore Drillin g, I n c. a n d
Marc Edwards (incorporated by reference to Exhibit 10.1 to our Current R eport o n Fo rm 8 -K f iled
March 23, 2020).
10.22+ Diamond Offshore Drilling, Inc. 2020 Key Employee Incentive Plan, effective as of April 21, 2020, and
amended and restated as of June 23, 2020 (incorporated by reference to Ex hib it 1 0.1 t o o ur C u rrent
Report on Form 8-K filed June 26, 2020).
10.23 Plan Support Agreement, dated as of January 22, 2021, by and among the Debtors and the C on sent ing
Stakeholders (incorporated by reference to Exhibit 10.1 to our Current Report on Form 8 -K filed
January 25, 2021).
21.1* List of Subsidiaries of Diamond Offshore Drilling, Inc.
23.1* Consent of Deloitte & Touche LLP.
24.1
Power of Attorney (set forth on the signature page hereof).
31.1* Rule 13a -14(a) Certification of the Chief Executive Officer.
31.2* Rule 13a -14(a) Certification of the Chief Financial Officer.
32.1* Section 1350 Certification of the Chief Executive Officer and Chief Financial Officer.
101.INS* XBRL Instance Document - the instance document does not appear in the Interactive Data File because
its XBRL tags are embedded within the Inline XBRL document.
101.SCH* Inline XBRL Taxonomy Extension Schema Document.
101.CAL* Inline XBRL Taxonomy Calculation Linkbase Document.
101.LAB* Inline XBRL Taxonomy Label Linkbase Document.
101.PRE* Inline XBRL Presentation Linkbase Document.
101.DEF* Inline XBRL Definition Linkbase Document.
104* The cover page of our Annual Report on Form 10-K for the fiscal y ear en ded Decemb er 3 1 , 2 0 20,
formatted in Inline XBRL (included with the Exhibit 101 attachments).
*
Filed or furnished herewith.
+ Management contracts or compensatory plans or arrangements.
Item 16. Form 10-K Summary.
None.
104
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the regist ra nt h as
duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, o n Feb ruary 1 0 ,
2021.
DIAMOND OFFSHORE DRILLING, INC.
By: /s/ SCOTT KORNBLAU
Scott Kornblau
Chief Financial Officer
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints Scott Kornblau and David L. Rolan d an d
each of them, as his or her true and lawful attorneys-in-fact and agents, with f u ll p o wer o f su b stit ut ion an d re -
substitution, for him or her and in his or her name, place and stead, in any and all capacit ies, t o sign a n y a nd a ll
documents relating to this Annual Report on Form 10-K, including any a nd a ll a mendmen ts a nd su p plement s
thereto, and to file the same with all exhibits thereto and other documents in connection therewith with the Securities
and Exchange Commission, granting unto said attorneys-in-fact and agents fu ll p o wer a nd a ut horit y t o d o a nd
perform each and every act and thing requisite and necessary to be done, as fully as to all intents and purposes as h e
or she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or their
or his or her substitute or substitutes may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed belo w b y t h e
following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature
Title
Date
/s/ MARC EDWARDS
Marc Edwards
/s/ SCOTT KORNBLAU
Scott Kornblau
Chairman of the Board, President and
Chief Executive Officer (Principal
Executive Officer)
Senior Vice President and
Chief Financial Officer
(Principal Financial Officer)
/s/ DOMINIC A. SAVARINO
Dominic A. Savarino
Vice President and Chief Accounting &
Tax Officer
(Principal Accounting Officer)
/s/ ANATOL FEYGIN
Anatol Feygin
/s/ PAUL G. GAFFNEY II
Paul G. Gaffney II
/s/ ALAN H. HOWARD
Alan H. Howard
/s/ PETER MCTEAGUE
Peter McTeague
/s/ KENNETH I. SIEGEL
Kenneth I. Siegel
/s/ JAMES S. TISCH
James S. Tisch
Director
Director
Director
Director
Director
Director
105
February 10, 2021
February 10, 2021
February 10, 2021
February 10, 2021
February 10, 2021
February 10, 2021
February 10, 2021
February 10, 2021
February 10, 2021