What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2022-01-31 compared with 2021-07-28 · 195 added, 316 removed, 177 unchanged (74% of the section changed)

2 unchanged sentences

This Quarterly Report on Form 10‑Q (“Form 10‑Q”) contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities and Exchange Act of 1934, as amended (the “Exchange Act”).

In addition, forward-looking statements generally can be identified by the use of forward-looking terminology such as “may,” “will,” “expect,” “intend,” “estimate,” “anticipate,” “believe,” “predict,” “project,” “target,” “continue,” or the negative thereof or similar terminology.

All statements other than statements of historical facts included in this Form 10-Q, including without limitation, statements regarding our future financial position, business strategy, budgets, projected costs and plans, objectives of management for future operations, contract terms, financing and funding, and the ongoing effect of the COVID-19 pandemic and actions we or others may take in response to the COVID-19 pandemic are forward-looking statements.

In addition, forward-looking statements include all statements that are not historical facts and can be identified by the use of forward-looking terminology such as “may,” “will,” “expect,” “intend,” “estimate,” “anticipate,” “believe,” “predict,” “project,” “target,” “continue,” or the negative thereof or similar terminology.

Forward-looking statements are based upon current plans, estimates, and expectations that are subject to risks, uncertainties, and assumptions.

2 unchanged sentences

The inclusion of such statements should not be regarded as a representation that such plans, estimates, or expectations will be achieved.

These forward-looking statements include, among others, such things as:

These forward-looking statements include, among others, information concerning our possible or assumed future results of operations and statements about the following subjects as:

• our business strategy;

3 unchanged sentences

• the volatility of future oil and natural gas prices;

• the effects of actions by, or disputes among or between, members of the Organization of Petroleum Exporting Countries and other oil producing nations ("OPEC+") with respect to production levels or other matters related to the prices of oil and natural gas;

• the effects of actions by, or disputes among or between, members of the Organization of Petroleum Exporting Countries ("OPEC") and other oil producing nations (together, "OPEC+") with respect to production levels or other matters related to the prices of oil and natural gas;

• changes in future levels of drilling activity and capital expenditures by our customers, whether as a result of global capital markets and liquidity, changes in prices of oil and natural gas or otherwise, which may cause us to idle or stack additional rigs, or increase our capital expenditures and the construction or acquisition of rigs;

• the effect, impact, potential duration or other implications of the ongoing outbreak of a novel strain of coronavirus ("COVID-19") and the oil price collapse in 2020, and any expectations we may have with respect thereto;

• the ongoing effect, impact, potential duration or other implications of the novel strain of coronavirus ("COVID-19") pandemic, including any variants of the virus, and the effectiveness of vaccines and distribution of vaccines to treat the virus, any reinstatement of governmental-imposed restrictions, and the pace of the economic recovery and any expectations we may have with respect thereto;

• changes in worldwide rig supply and demand, competition, or technology;

2 unchanged sentences

• our belief that the final outcome of our legal proceedings will not materially affect our financial results;

• impact of federal and state legislative and regulatory actions, including as a result of the change in the U.S.

presidential administration, affecting our costs and increasing operation restrictions or delay and other adverse impacts on our business;

• impact of federal and state legislative and regulatory actions and policies affecting our costs and increasing operation restrictions or delay and other adverse impacts on our business;

• impact of geopolitical developments and tensions, war and uncertainty in oil-producing countries;

• environmental or other liabilities, risks, damages or losses, whether related to storms or hurricanes (including wreckage or debris removal), collisions, grounding, blowouts, fires, explosions, other accidents, terrorism or otherwise, for which insurance coverage and contractual indemnities may be insufficient, unenforceable or otherwise unavailable;

1 unchanged sentence

• tax matters, including our effective tax rates, tax positions, results of audits, changes in tax laws, treaties and regulations, tax assessments and liabilities for taxes;

• the occurrence of cybersecurity incidents, attacks or other breaches to our information technology systems;

• potential impacts on our business resulting from climate change, greenhouse gas regulations, and the impact of climate change-related changes in the frequency and severity of weather patterns;

• potential long-lived asset impairments;

• our sustainability strategy, including expectations, plans, or goals related to corporate responsibility, sustainability and environmental matters, and related reputational risks as a result of execution of this strategy.

Important factors that could cause actual results to differ materially from our expectations or results discussed in the forward‑looking statements are disclosed in our 2021 Annual Report on Form 10-K under Item 1A— “Risk Factors,” and Item 7— “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” All subsequent written and oral forward‑looking statements attributable to us, or persons acting on our behalf, are expressly qualified in their entirety by such cautionary statements.

4 unchanged sentences

(“H&P,” which, together with its subsidiaries, is identified as the “Company,” “we,” “us,” or “our,” except where stated or the context requires otherwise) through its operating subsidiaries provides performance-driven drilling solutions and technologies that are intended to make hydrocarbon recovery safer and more economical for oil and gas exploration and production companies.

As of June 30, 2021, our drilling rig fleet included a total of 281 drilling rigs.

Our reportable operating business segments consist of the North America Solutions segment with 242 rigs, the Offshore Gulf of Mexico segment with seven offshore platform rigs and the International Solutions segment with 32 rigs as of June 30, 2021.

At the close of the third quarter of fiscal year 2021, we had 131 contracted rigs, of which 64 were under a fixed-term contract and 67 were working well-to-well, compared to 79 contracted rigs at September 30, 2020.

As of December 31, 2021, our drilling rig fleet included a total of 271 drilling rigs.

Our reportable operating business segments consist of the North America Solutions segment with 236 rigs, the Offshore Gulf of Mexico segment with seven offshore platform rigs and the International Solutions segment with 28 rigs as of December 31, 2021.

At the close of the first quarter of fiscal year 2022, we had 166 contracted rigs, of which 88 were under a fixed-term contract and 78 were working well-to-well, compared to 137 contracted rigs at September 30, 2021.

Our long-term strategy remains focused on innovation, technology, safety, operational excellence and reliability.

1 unchanged sentence

Market Outlook

Our revenues are derived from the capital expenditures of companies involved in the exploration, development and production of crude oil and natural gas (“E&Ps”).

Generally, the level of capital expenditures is dictated by current and expected future prices of crude oil and natural gas, which are determined by various supply and demand factors.

Our revenues are primarily derived from the capital expenditures of companies involved in the exploration, development and production of crude oil and natural gas (“E&Ps”).

Generally, the level of capital expenditures is dictated by current and expected future prices of crude oil and natural gas, which are determined by improving supply and demand factors.

Both commodities have historically been, and we expect them to continue to be, cyclical and highly volatile.

Our drilling services operations are organized into the following reportable operating segments:

North America Solutions, Offshore Gulf of Mexico, and International Solutions.

With respect to North America Solutions, the resurgence of oil and natural gas production coming from the United States brought about by unconventional shale drilling for oil has significantly impacted the supply of oil and natural gas and the type of rig utilized in the U.S.

2 unchanged sentences

During this time, we designed, built and delivered to the market new technology AC drive rigs (FlexRig ® ), substantially growing our fleet.

The pace of progress of unconventional drilling over the years has been cyclical and volatile, dictated by crude oil and natural gas price fluctuations, which at times have proven to be dramatic.

The pace of progress of unconventional drilling over the years has been cyclical and volatile, dictated by crude oil and natural gas price fluctuations.

Throughout this time, the length of the lateral section of wells drilled in the United States has continued to grow.

5 unchanged sentences

As a result, there has been a structural decline in the use of non-super-spec rigs across the industry.

However, as a result of having a large super-spec fleet, we gained market share and became the largest provider of super-spec rigs in the industry.

As such, we believe we are well positioned to respond to various market conditions.

In early March 2020, the increase in crude oil supply resulting from production escalations from OPEC+ combined with a decrease in crude oil demand stemming from the global response and uncertainties surrounding the COVID-19 pandemic resulted in a sharp decline in crude oil prices.

However, because we have a large super-spec fleet, we gained market share and became the largest provider of super-spec rigs in the industry.

Accordingly, we believe we are well positioned to respond to various market conditions.

In early March 2020, the increase in crude oil supply resulting from production escalations from the Organization of the Petroleum Exporting Countries and other oil producing nations ("OPEC+") combined with a decrease in crude oil demand stemming from the global response and uncertainties surrounding the COVID-19 pandemic resulted in a sharp decline in crude oil prices.

Specifically, during calendar year 2020, crude oil prices fell from approximately $60 per barrel to the low-to-mid-$20 per barrel range, lower in some cases, which resulted in customers decreasing their 2020 capital budgets nearly 50 percent from calendar year 2019 levels.

There was a corresponding dramatic decline in the demand for land rigs, such that the overall rig count for calendar year 2020 averaged roughly 430 rigs, significantly lower than in calendar year 2019, which averaged approximately 940 rigs.

We experienced much of our rig count decline during the second and third quarters of fiscal year 2020 as our North American Solutions active rig count declined from 195 rigs at December 31, 2019 to a low of 47 rigs in August of 2020.

We experienced much of our rig count decline during the second and third quarters of fiscal year 2020 as our North America Solutions active rig count declined from 195 rigs at December 31, 2019 to a low of 47 rigs in August of 2020.

However, during the fourth quarter of fiscal year 2020, the market experienced a stabilization of crude oil prices in the $40 per barrel range and subsequently crude oil prices moved toward $50 per barrel as our customers set their capital budgets for calendar year 2021.

More recently, crude oil prices have continued to increase, reaching more than $70 per barrel.

That said, however, we do not expect rig activity to move in tandem with crude oil prices to the same extent as it has historically.

This is primarily due to a large portion of our customers having a more disciplined approach to their operations and capital spending.

We expect a majority will maintain their activity levels in accordance with their capital budgets for 2021, which were set during a time when crude oil prices were lower and will not adjust spending levels higher as crude oil prices move higher.

Along with stabilization of crude prices during the fourth quarter of fiscal year 2020, our rig activity began to increase, and increased more significantly during the first and second quarters of fiscal year 2021.

Our North American Solutions active rig count has more than doubled from 47 rigs in August 2020 to 121 rigs at June 30, 2021.

We do expect further increases in our rig count for the remainder of fiscal year 2021 as the level of customer capital spending is higher in calendar 2021 than it was in calendar 2020.

However, we expect the rate of rig count increases to be at a much more modest pace during the remainder of our fiscal year 2021 compared to what we experienced during the first nine months of fiscal year 2021.

Utilization for our super-spec FlexRig® fleet peaked in late calendar year 2018 with 216 of 221 super-spec rigs working (98 percent utilization);

however, the subsequent decline in the demand for land rigs resulted in customers idling a large portion of our super-spec FlexRig® fleet.

At June 30, 2021, we had 113 idle super-spec rigs out of our FlexRig® fleet of 232 super-spec rigs (51 percent utilization).

During calendar 2021 crude oil prices continued to increase, reaching more than $70 per barrel.

However, as expected, rig activity did not move in tandem with crude oil prices to the same extent it had historically as a large portion of our customers have a more disciplined approach to their operations and capital spending in order to enhance their own financial returns.

As our customers establish their capital budgets for calendar year 2022, they are doing so in a higher crude oil price environment compared to a year ago, which suggests a higher level of capital spending in calendar year 2022 compared to calendar year 2021.

Additionally, higher commodity prices have allowed customers to repair strengthen their balance sheets following the 2020 downturn freeing up additional funds for investment.

Consequently, we anticipate a higher rig activity in fiscal 2022 relative to fiscal 2021.

Our North America Solutions active rigs count has more than tripled from 47 rigs in August 2020 to 154 rigs at December 31, 2021.

The initial sizable increase in our rig count of 25 rigs occurred during our first fiscal quarter of 2021 as customers set their 2021 capital spending budgets followed by another 15 rig increase during the second fiscal quarter of 2021.

More recently the other sizable increase occurred during our first fiscal quarter of 2022 with an addition of another 27 rigs to our active rig count.

To date, our fiscal 2022 rig count increases appear to mirror those of 2021 as we expect to add somewhere between 11 and 21 rigs during the second fiscal quarter of 2022.

Collectively, our other business segments, Offshore Gulf of Mexico and International Solutions, are exposed to the same macro commodity price environment affecting our North America Solutions segment;

1 unchanged sentence

While we do not expect much change in our Offshore Gulf of Mexico segment, we see opportunities for improvement in our International Solutions segment, but those will likely occur on a more extended timeline compared to what we have experienced in the North America Solutions segment.

H&P recognizes the uncertainties and concerns caused by the COVID-19 pandemic;

H&P recognizes the uncertainties and concerns caused by the ongoing COVID-19 pandemic;

however, we have managed the Company over time to be in a position of strength both financially and operationally when facing uncertainties of this magnitude.

The COVID-19 pandemic has had a significant financial impact on the Company, including increased costs as a result of labor shortages and logistics constraints.

The global response to coping with the pandemic resulted in a drop in demand for crude oil, which, when combined with a more than adequate supply of crude oil, has resulted in a sharp decline in crude oil prices, causing our customers to have pronounced pullbacks in their operations and planned capital expenditures.

The direct impact of COVID-19 on H&P's operations has created some challenges that we believe the Company is adequately addressing to ensure a robust continuation of our operations albeit at a lower activity level.

The health and safety of all H&P stakeholders - our employees, customers, and vendors - remain a top priority at the Company.

The global response to coping with the pandemic resulted in a drop in demand for crude oil, which, when combined with a more than adequate supply of crude oil, resulted in a sharp decline in crude oil prices, causing our customers to have pronounced pullbacks in their operations and planned capital expenditures.

Despite the beginning of a recovery during 2021, the direct impact of COVID-19 on H&P's operations has created some challenges that we believe the Company is adequately addressing to ensure a robust continuation of our operations.

The health and safety of all H&P stakeholders - our employees, customers, and vendors - remains a top priority at the Company.

Accordingly, H&P has implemented additional policies and procedures designed to protect the well-being of our stakeholders and to minimize the impact of COVID-19 on our ongoing operations.

1 unchanged sentence

In some instances, policies and procedures are more stringent in our foreign operations than in our North America operations and this resulted in a complete suspension, for a certain period of time, of all drilling operations in at least one foreign jurisdiction.

In the United States, the Company is an ‘essential critical infrastructure’ company as defined by the Department of Homeland Security and the Cybersecurity and Infrastructure Security Agency and, as such, continues to operate rigs and technology solutions, providing valuable services to our customers in support of the global energy infrastructure.

Since the COVID-19 outbreak began, no rigs have been fully shut down (other than temporary shutdowns for disinfecting) and such measures to disinfect facilities have not had a significant impact on service.

In the United States, the Company is an ‘essential critical infrastructure’ company as defined by the Department of Homeland Security and the Cybersecurity and Infrastructure Security Agency.

As such, in the event that there are further government-imposed stay at home orders, we will continue to operate rigs and technology solutions, and provide valuable services to our customers in support of the global energy infrastructure.

Since the COVID-19 outbreak began, no rigs have been fully shut down (other than temporary shutdowns for disinfecting and the suspension for a certain period of time on one of our international rigs) and these temporary shutdowns have not had a significant impact on service.

We believe our service levels are unchanged from pre-pandemic levels.

From a financial perspective, we believe the Company is well positioned to continue as a going concern even through a more protracted disruption caused by COVID-19, oil oversupply and low oil prices.

The nature of the COVID-19 pandemic is inherently uncertain, and as a result, the Company is unable to reasonably estimate the duration and ultimate impacts of the pandemic, including the timing or level of any subsequent recovery.

As a result, the Company cannot be certain of the degree of impact on the Company’s business, results of operations and/or financial position for future periods.

From a financial perspective, we believe the Company is well positioned to continue to manage through a more protracted disruption caused by COVID-19 and the resulting oil price volatility.

We have taken measures to reduce costs and capital expenditures to levels that better reflect a lower activity environment.

1 unchanged sentence

The culmination of these cost-saving initiatives resulted in a $16 million restructuring charge during fiscal year 2020.

Further, we took additional steps in fiscal year 2021 to reduce our operating cost structure.

These measures will result in an estimated annualized savings of $7 million with the full benefit expected to be realized in calendar year 2022.

Further, we took additional steps in fiscal year 2021 to reduce our cost structure.

These measures will result in an estimated annualized savings of more than $10 million with the full benefit expected to be realized in calendar year 2022.

We anticipate further cost reductions going forward;

1 unchanged sentence

These cost reduction measures could lead to additional restructuring charges in future periods.

At June 30, 2021, the Company had cash and cash equivalents and short-term investments of $557.8 million and availability under the 2018 Credit Facility (as defined herein) of $750.0 million resulting in approximately $1.3 billion in near-term liquidity .

On September 27, 2021, the Company delivered a conditional notice of optional full redemption for all of the outstanding 4.65 percent unsecured senior notes due 2025 (the "2025 Notes") at a redemption price calculated in accordance with the indenture governing the 2025 Notes, plus accrued and unpaid interest on the 2025 Notes to be redeemed.

On September 29, 2021, we issued $550.0 million aggregate principal amount of our 2.90 percent unsecured senior notes due 2031 (the "2031 Notes").

The Company’s obligation to redeem the 2025 Notes was conditioned upon the prior consummation of the issuance of the 2031 Notes, which was satisfied on September 29, 2021.

The proceeds from the offering of the 2031 Notes were used to redeem the 2025 Notes.

On October 27, 2021, we redeemed all of the outstanding 2025 Notes.

As a result, the associated make-whole premium of $56.4 million and the write off of the unamortized discount and debt issuance costs of $3.7 million were recognized during the first fiscal quarter of 2022 contemporaneously with the October 27, 2021 debt extinguishment and recorded in Loss on Extinguishment of Debt on our Unaudited Condensed Consolidated Statements of Operations..

See “—Liquidity and Capital Resources—Senior Notes—2.90% Senior Notes due 2031” below and Note 6—Debt to our Consolidated Financial Statements for more information.

At December 31, 2021, the Company had cash and cash equivalents and short-term investments of $441.3 million and availability under the 2018 Credit Facility (as defined herein) of $750.0 million resulting in approximately $1.2 billion in near-term liquidity.

We currently do not anticipate the need to draw on the 2018 Credit Facility.

As part of the Company's normal operations, we regularly monitor the creditworthiness of our customer s and vendors, screening out those that we believe have a high risk of failure to honor their counter-party obligations either through payment or delivery of goods or services.

As part of the Company's normal operations, we regularly monitor the creditworthiness of our customers and vendors, screening out those that we believe have a high risk of failure to honor their counter-party obligations either through payment or delivery of goods or services.

We also perform routine reviews of our accounts receivable and other amounts owed to us to assess and quantify the ultimate collectability of those amounts.

At June 30, 2021 and September 30, 2020, the Company had a net allowance against its accounts receivable of $1.9 million and $1.8 million, respectively.

As a result, the Company cannot be certain of the degree of impact on the Company’s business, results of operations and/or financial position for future periods.

Subsequent to March 31, 2020, we adjusted our credit risk monitoring for specific customers, in response to the economic events described above.

At December 31, 2021 and September 30, 2021, the Company had a net allowance against its accounts receivable of $1.7 million and $2.1 million, respectively.

Recent Developments

Credit Facility Maturity Extension

On April 16, 2021, lenders with $680.0 million of commitments under the 2018 Credit Facility exercised their option to extend the maturity of the 2018 Credit Facility from November 13, 2024 to November 12, 2025.

No other terms of the 2018 Credit Facility were amended in connection with this extension.

The remaining $70.0 million of commitments under the 2018 Credit Facility will expire on November 13, 2024, unless extended by the applicable lender before such date.

Assets Held-for-Sale

In March 2021, the Company's leadership continued the execution of the current strategy, which was initially introduced in 2019, focusing on operating various types of highly capable upgraded rigs and phasing out the older, less capable fleet.

As a result, the Company has undertaken a plan to sell 71 Domestic non-super-spec rigs, all within our North America Solutions segment, the majority of which were previously decommissioned, written down and/or held as capital spares.

The book values of those assets were written down to their fair value less cost to sell of $13.5 million, and were reclassified as held-for-sale in the second and third quarter of fiscal year 2021.

As a result, we recognized a non-cash impairment charge of $56.4 million, during the nine months ended June 30, 2021, in the Unaudited Condensed Consolidated Statement of Operations.

During the three months ended June 30, 2021, we completed the sale of assets with a net book value of $3.4 million that were classified as held-for-sale during the second quarter of fiscal year 2021.

Restructuring Charges

During the second quarter of fiscal year 2021, we reorganized our IT operations and moved select IT functions to a managed service provider.

Costs incurred as of June 30, 2021 in connection with the restructuring are primarily comprised of one-time severance benefits to employees who were involuntarily terminated.

The termination date of some of the employees extend beyond June 30, 2021, and such employees are required to render service through their respective termination date in order to receive the one-time severance benefit.

During the third quarter of fiscal year 2021, we commenced a voluntary separation program at our local office in Argentina for which we incurred one-time severance charges for employees who were voluntarily terminated.

Additionally, we continue to take measures to lower our cost structure based on activity levels.

During the second and third quarter of fiscal year 2021, we incurred one-time moving related expenses due to the downsizing and relocation of our Houston assembly facility and storage yards.

This together with additional restructuring activities that could result from our in-process cost management review could result in additional restructuring charges throughout the year.

Sale of Offshore Rig

During the first quarter of fiscal year 2021, we closed on the sale of an offshore platform rig within our Offshore Gulf of Mexico operating segment for total consideration of $12.0 million with an aggregate net book value of $2.8 million, resulting in a gain of $9.2 million, which is included within (gain) loss on sale of assets on our Unaudited Condensed Consolidated Statements of Operations during the nine months ended June 30, 2021.

Investments in Geothermal

During the three months ended December 31, 2021, we purchased an additional $9.0 million in geothermal investments consisting of both debt and equity securities.

Investments were made in two separate companies that are pursuing technological concepts to make unconventional geothermal energy a viable economic renewable energy source.

One company’s focus is centered on an enhanced geothermal system concept that utilizes horizontal drilling and fiber-optic sensing.

The other company’s focus is on a closed-loop concept that uses horizontal multilateral wellbores and proprietary working fluid.

Both concepts are designed to harvest geothermal heat to create carbon-free, baseload energy.

Our aggregate balance of investments in geothermal companies was $11.8 million at December 31, 2021.

Investment in ADNOC Drilling

During September 2021, the Company made a $100.0 million cornerstone investment in ADNOC Drilling in advance of its announced IPO, representing 159.7 million shares of ADNOC Drilling, equivalent to a one percent ownership stake and subject to a three-year lockup period.

ADNOC Drilling's IPO was completed on October 3, 2021 and its shares are listed and traded on the Abu Dhabi Securities Exchange (ADX).

Our investment is classified as a long-term equity investment within Investments in our Unaudited Condensed Consolidated Balance Sheets.

We have applied the guidance in Topic 820, Fair Value Measurement, in the initial accounting of the transaction and the subsequent revaluation of the investment balance, concluding that a contractual restriction on the sale of an equity security that is publicly traded is not considered in measuring fair value.

During the three months ended December 31, 2021, we recognized a gain of $47.7 million in our Unaudited Condensed Consolidated Statement of Operations.

As of December 31, 2021, this investment is classified as a Level 1 investment and based on the quoted stock price on the Abu Dhabi Securities Exchange, without applying a discount factor.

Contract Backlog

As of June 30, 2021 and September 30, 2020, our contract drilling backlog, being the expected future dayrate revenue from executed contracts, was $582.5 million and $658.0 million, respectively.

As of December 31, 2021 and September 30, 2021, our contract drilling backlog, being the expected future dayrate revenue from executed contracts, was $723.5 million and $572.0 million, respectively.

These amounts do not include anticipated contract renewals or expected performance bonuses.

The decrease in backlog at June 30, 2021 from September 30, 2020 is primarily due to prevailing market conditions causing a decline in the number of longer term drilling contracts executed.

Approximately 65.2 percent of the June 30, 2021 total backlog is reasonably expected to be fulfilled in fiscal year 2022 and thereafter.

Fixed-term contracts customarily provide for termination at the election of the customer, with an early termination payment to be paid to us if a contract is terminated prior to the expiration of the fixed term.

As a result of the depressed market conditions and negative outlook for the near term, beginning in the second quarter of fiscal year 2020, certain of our customers, as well as those of our competitors, opted to renegotiate or early terminate existing drilling contracts.

Such renegotiations included requests to lower the contract dayrate in exchange for additional terms, temporary stacking of the rig, and other proposals.

During the three months ended June 30, 2021, we reported no early termination revenue associated with term contracts.

For the nine months ended June 30, 2021, we recognized $7.7 million of early termination revenue associated with term contracts.

During the three and nine months ended June 30, 2020, we reported early termination revenue of $49.5 million and $57.8 million, respectively.

The following table sets forth the total backlog by reportable segment as of June 30, 2021 and September 30, 2020, and the percentage of the June 30, 2021 backlog reasonably expected to be fulfilled in fiscal year 2022 and thereafter:

(in millions) June 30, 2021 September 30, 2020 Percentage Reasonably

Expected to be Filled in

Fiscal Year 2022

and Thereafter

The increase in backlog at December 31, 2021 from September 30, 2021 is primarily due to an increase in the number of longer term drilling contracts executed.

Approximately 33.7 percent of the December 31, 2021 total backlog is reasonably expected to be fulfilled in fiscal year 2023 and thereafter.

The following table sets forth the total backlog by reportable segment as of December 31, 2021 and September 30, 2021, and the percentage of the December 31, 2021 backlog reasonably expected to be fulfilled in fiscal year 2023 and thereafter:

(in millions) December 31, 2021 September 30, 2021 Percentage Reasonably Expected to be Filled in Fiscal Year 2023 and Thereafter

North America Solutions $ 492.5 $ 429.6 20.9 %

2 unchanged sentences

218.0 125.2 64.5

$ 723.5 $ 572.0

(1) Subsequent to December 31, 2021, we received notice from an International Solutions customer of their intent to early terminate a fixed-term drilling services contract.

Due to the notification being received subsequent to December 31, 2021, the backlog as of December 31, 2021 includes approximately $22.0 million of future dayrate revenue related to this contract.

The early termination of a contract may result in a rig being idle for an extended period of time, which could adversely affect our financial condition, results of operations and cash flows.

4 unchanged sentences

Additionally, see "Item 1A.

Risk Factors – The impact and effects of public health crises, pandemics and epidemics, such as the ongoing outbreak of COVID-19, have adversely affected and are expected to continue to adversely affect our business, financial condition and results of operations" within our 2020 Annual Report on Form 10-K.

Results of Operations for the Three Months Ended June 30, 2021 and 2020

Consolidated Results of Operations

Net Loss We reported a loss from continuing operations of $56.7 million ($0.53 loss per diluted share) on operating revenues of $332.2 million for the three months ended June 30, 2021 compared to a loss from continuing operations of $46.0 million ($0.43 loss per diluted share) on operating revenues of $317.4 million for the three months ended June 30, 2020.

Included in the net loss for the three months ended June 30, 2021 is income of $1.2 million ($0.01 per diluted share) from discontinued operations.

Including discontinued operations, we recorded a net loss of $55.6 million ($0.52 loss per diluted share) for the three months ended June 30, 2021 compared to a net loss of $45.6 million ($0.43 loss per diluted share) for the three months ended June 30, 2020.

Research and Development For the three months ended June 30, 2021 and 2020, we incurred $5.6 million and $3.6 million, respectively, of research and development expenses.

Selling, General and Administrative Expense Selling, general and administrative expenses decreased to $41.7 million during the three months ended June 30, 2021 compared to $43.1 million during the three months ended June 30, 2020.

The $1.4 million decrease in fiscal year 2021 compared to the same period in fiscal year 2020 is primarily due to a lower number of personnel, partially offset by higher accrued variable compensation expense.

Asset Impairment Charge During the three months ended June 30, 2021, three Domestic non super-spec rigs were reclassified as assets held-for-sale.

As such, the book values of these rigs were written down to their fair value less costs to sell of $0.4 million, resulting in a non-cash impairment charge of $2.1 million ($0.9 million net of tax, or $0.01 per diluted share) in the Unaudited Consolidated Statement of Operations.

We had no impairment charges during the three months ended June 30, 2020.

Restructuring Charges During the three months ended June 30, 2021 and 2020 we incurred $2.1 million and $15.5 million, respectively, in restructuring charges.

The charges incurred during the third quarter of fiscal year 2021 included $0.7 million in one-time severance benefits paid to employees who were voluntarily or involuntarily terminated coupled with charges of $1.4 million related to the downsizing of yard facilities.

The charges incurred during the third quarter of fiscal year 2020 were primarily comprised of $19.0 million in one-time severance benefits to employees who were voluntarily or involuntarily terminated, offset by a benefit of $3.5 million related to forfeitures and modifications of stock-based compensation awards.

Income Taxes We had an income tax benefit of $23.7 million for the three months ended June 30, 2021 (which includes discrete tax benefits of approximately $5.8 million primarily related to a decrease in our deferred state income tax rate) compared to an income tax benefit of $17.6 million for the three months ended June 30, 2020 (which includes discrete tax benefits of approximately $5.9 million primarily related to a decrease in our deferred state income tax rate and return to provision adjustments).

Our statutory federal income tax rate for fiscal year 2021 is 21.0 percent (before incremental state and foreign taxes).

North America Solutions Operations Segment

Three Months Ended June 30,

(in thousands, except operating statistics) 2021 2020 % Change

Operating revenues $ 281,132 $ 254,434 10.5

Direct operating expenses 206,172 152,663 35.1

Segment gross margin 74,960 101,771 (26.3)

Depreciation and amortization 96,997 102,699 (5.6)

Research and development 5,605 3,459 62.0

Selling, general and administrative expense 12,583 13,533 (7.0)

Asset impairment charge 2,130 — —

Restructuring charges 1,388 7,237 (80.8)

Segment operating loss $ (43,743) $ (25,157) 73.9

Operating Statistics (1) :

Average active rigs 119 89 33.7

Number of active rigs at the end of period 121 68 77.9

Number of available rigs at the end of period 242 262 (7.6)

Reimbursements of "out-of-pocket" expenses $ 33,282 $ 27,806 19.7

(1) These operating metrics allow investors to analyze the various components of segment financial results in terms of activity, utilization and other key results.

Management uses these metrics to analyze historical segment financial results and as the key inputs for forecasting and budgeting segment financial results.

Beginning in the first quarter of fiscal year 2021, these operating metrics replaced previously used per day metrics.

As a result, prior year comparative information is also provided above.

Segment Gross Margin The North America Solutions segment gross margin was $75.0 million for the three months ended June 30, 2021 compared to $101.8 million in the same period of fiscal year 2020.

The decrease was primarily driven by a decline in early termination revenue, partially offset by higher activity levels.

Revenues were $281.1 million and $254.4 million in the three months ended June 30, 2021 and 2020, respectively.

The increase in operating revenue is primarily due to higher activity levels.

For the three months ended June 30, 2021, we reported no early termination revenue associated with term contracts compared to $48.8 million during the same period of fiscal year 2020.

Fixed‑term contracts customarily provide for termination at the election of the customer, with an early termination payment to be paid to us if a contract is terminated prior to the expiration of the fixed term (except in limited circumstances including sustained unsatisfactory performance by us).

Direct operating expenses increased to $206.2 million during the three months ended June 30, 2021 as compared to $152.7 million during the three months ended June 30, 2020.

The increase was due to higher activity levels and higher rig recommissioning expenses.

Depreciation Depreciation decreased to $97.0 million during the three months ended June 30, 2021 as compared to $102.7 million during the three months ended June 30, 2020.

The decrease was primarily attributable to rig impairments during fiscal year 2020 and ongoing low levels of capital expenditures.

Asset Impairment Charge During the three months ended June 30, 2021, three Domestic non super-spec rigs were reclassified as assets held-for-sale.

As such, the book values of these rigs were written down to their fair value less cost to sell of $0.4 million, resulting in a non-cash impairment charge of $2.1 million in the Unaudited Consolidated Statement of Operations.

We had no impairment charges during the three months ended June 30, 2020.

Restructuring Charges For the three months ended June 30, 2021, we incurred $1.4 million in restructuring charges.

These expenses primarily include charges related to the downsizing of yard facilities.

During the three months ended June 30, 2020, we incurred $7.2 million in restructuring charges primarily comprised of $10.2 million in one-time severance benefits to employees who were voluntarily or involuntarily terminated, offset by a benefit of $3.0 million related to forfeitures and modifications of stock-based compensation awards.

Offshore Gulf of Mexico Operations Segment

Three Months Ended June 30,

(in thousands, except operating statistics) 2021 2020 % Change

Operating revenues $ 33,364 $ 37,494 (11.0)

Direct operating expenses 24,127 28,967 (16.7)

Segment gross margin 9,237 8,527 8.3

Depreciation 2,938 3,004 (2.2)

Selling, general and administrative expense 592 1,248 (52.6)

Restructuring charges — 1,262 (100.0)

Segment operating income $ 5,707 $ 3,013 89.4

Operating Statistics (1) :

Average active rigs 4 5 (20.0)

Number of active rigs at the end of period 4 5 (20.0)

Number of available rigs at the end of period 7 8 (12.5)

Reimbursements of "out-of-pocket" expenses $ 8,342 $ 8,224 1.4

(1) These operating metrics allow investors to analyze the various components of segment financial results in terms of activity, utilization and other key results.

Management uses these metrics to analyze historical segment financial results and as the key inputs for forecasting and budgeting segment financial results.

Beginning in the first quarter of fiscal year 2021, these operating metrics replaced previously used per day metrics.

As a result, prior year comparative information is also provided above.

Segment Gross Margin During the three months ended June 30, 2021, the Offshore Gulf of Mexico segment gross margin was $9.2 million compared to a gross margin of $8.5 million for the three months ended June 30, 2020.

This increase was driven by increased contribution from a rig that finished its mobilization and began drilling operations in April 2020.

We had an 11.0 percent decrease in operating revenue during the three months ended June 30, 2021 compared to the three months ended June 30, 2020.

Direct operating expenses decreased to $24.1 million during the three months ended June 30, 2021 as compared to $29.0 million during the three months ended June 30, 2020.

The decrease in operating revenue and expenses was primarily driven by the previously mentioned rig mobilization.

Restructuring Charges We did not incur any restructuring charges during the three months ended June 30, 2021.

During the three months ended June 30, 2020, we incurred $1.3 million in restructuring charges, which primarily consisted of employee termination benefits that resulted from our reduction in staffing levels.

International Solutions Operations Segment

Three Months Ended June 30,

(in thousands, except operating statistics) 2021 2020 % Change

Operating revenues $ 15,278 $ 22,477 (32.0)

Direct operating expenses 16,690 27,595 (39.5)

Segment gross margin (1,412) (5,118) 72.4

Depreciation 573 996 (42.5)

Selling, general and administrative expense 1,346 1,129 19.2

Restructuring charges 207 2,297 (91.0)

Segment operating loss $ (3,538) $ (9,540) (62.9)

Operating Statistics (1) :

Average active rigs 5 11 (54.5)

Number of active rigs at the end of period 6 8 (25.0)

Number of available rigs at the end of period 32 32 —

Reimbursements of "out-of-pocket" expenses $ 1,152 $ 3,079 (62.6)

(1) These operating metrics allow investors to analyze the various components of segment financial results in terms of activity, utilization and other key results.

Management uses these metrics to analyze historical segment financial results and as the key inputs for forecasting and budgeting segment financial results.

Beginning in the first quarter of fiscal year 2021, these operating metrics replaced previously used per day metrics.

As a result, prior year comparative information is also provided above.

Segment Gross Margin The International Solutions segment gross margin was $(1.4) million for the three months ended June 30, 2021 compared to a gross margin of $(5.1) million for the three months ended June 30, 2020.

The change was primarily driven by lower activity levels offset by fixed minimum levels of country overhead during the three months ended June 30, 2021.

We had a 32.0 percent decrease in operating revenue during the three months ended June 30, 2021 compared to the three months ended June 30, 2020.

Direct operating expenses decreased to $16.7 million during the three months ended June 30, 2021 as compared to $27.6 million during the three months ended June 30, 2020.

This decrease in both operating revenue and expense was driven by lower activity levels.

Restructuring Charges For the three months ended June 30, 2021 and 2020, we incurred $0.2 million and $2.3 million in restructuring charges, respectively.

During the three months ended June 30, 2021, we commenced a voluntary separation program at our local office in Argentina for which we incurred one-time severance charges for employees who were voluntarily terminated.

Charges incurred during the three months ended June 30, 2020 primarily consisted of employee termination benefits that resulted from our reduction in staffing levels.

Other Operations

Results of our other operations, excluding corporate restructuring charges, corporate selling, general and administrative costs and corporate depreciation, are as follows:

Three Months Ended June 30,

(in thousands) 2021 2020 % Change

Operating revenues $ 11,818 $ 13,343 (11.4)

Direct operating expenses 15,865 7,906 100.7

Gross margin (4,047) 5,437 (174.4)

Depreciation 357 293 21.8

Research and development 5 179 (97.2)

Selling, general and administrative expense 261 309 (15.5)

Restructuring charges — 267 (100.0)

Operating income (loss) $ (4,670) $ 4,389 (206.4)

Gross Margin On October 1, 2019, we elected to utilize the Captive to insure the deductibles for our workers’ compensation, general liability and automobile liability claims programs.

Direct operating costs consisted primarily of adjustments to accruals for estimated losses of $6.0 million and $1.1 million allocated to the Captive during the three months ended June 30, 2021 and 2020, respectively.

The increase in estimated losses is primarily due to revised estimates of probable losses related to an open claim associated with an incident that occurred in the period covered by the Captive.

Intercompany premium revenues recorded by the Captive during the three months ended June 30, 2021 and 2020 amounted to $9.4 million and $10.4 million, respectively, which were eliminated upon consolidation.

Results of Operations for the Nine Months Ended June 30, 2021 and 2020

Risk Factors – The impact and effects of public health crises, pandemics and epidemics, such as the COVID-19 pandemic, have adversely affected and are expected to continue to adversely affect our business, financial condition and results of operations" within our 2021 Annual Report on Form 10-K.

Results of Operations for the Three Months Ended December 31, 2021 and 2020

Consolidated Results of Operations

Net Loss We reported a loss from continuing operations of $257.9 million ($2.40 loss per diluted share) on operating revenues of $874.8 million for the nine months ended June 30, 2021 compared to a loss from continuing operations of $435.7 million ($4.05 loss per diluted share) on operating revenues of $1.6 billion for the nine months ended June 30, 2020.

Included in the net loss for the nine months ended June 30, 2021 is income of $10.9 million ($0.10 per diluted share) from discontinued operations.

Including discontinued operations, we recorded a net loss of $247.0 million ($2.30 loss per diluted share) for the nine months ended June 30, 2021 compared to a net loss of $435.5 million ($4.05 loss per diluted share) for the nine months ended June 30, 2020.

Research and Development For the nine months ended June 30, 2021 and 2020, we incurred $16.5 million and $16.7 million, respectively, of research and development expenses.

Selling, General and Administrative Expense Selling, general and administrative expenses decreased to $120.4 million during the nine months ended June 30, 2021 compared to $134.9 million during the nine months ended June 30, 2020.

The $14.5 million decrease in fiscal year 2021 compared to the same period in fiscal year 2020 is primarily due to a lower number of personnel, partially offset by higher accrued variable compensation expense.

Asset Impairment Charge During the nine months ended June 30, 2021, we undertook a plan to sell 71 Domestic non-super-spec rigs, all within our North America Solutions segment, the majority of which were previously decommissioned, written down and/or held as capital spares.

This resulted in an impairment charge of $56.4 million ($43.3 million, net of tax, or $0.40 per diluted share), which is included in asset impairment charge on the Unaudited Condensed Consolidated Statement of Operations for the nine months ended June 30, 2021.

Comparatively, during the nine months ended June 30, 2020, we recorded an asset impairment charge of $563.2 million ($438.6 million net of tax, or $5.21 per diluted share) resulting from impairment of several assets including rotational inventory, property, plant and equipment, and goodwill.

Restructuring Charges During the nine months ended June 30, 2021 and 2020, we incurred $3.9 million and $15.5 million, respectively, in restructuring charges.

The charges incurred during the nine months ended June 30, 2021 included $0.9 million in one-time severance benefits paid to employees who were voluntarily or involuntarily terminated coupled with charges of $3.0 million related to the relocation of the Houston assembly facility and the downsizing of storage yard facilities.

The charges incurred during the nine months ended June 30, 2020 were primarily comprised of $19.0 million in one-time severance benefits to employees who were voluntarily or involuntarily terminated, offset by a benefit of $3.5 million related to forfeitures and modifications of stock-based compensation awards.

Income Taxes We had an income tax benefit of $78.4 million for the nine months ended June 30, 2021 (which includes discrete tax benefits of approximately $1.9 million primarily related to a decrease in our deferred state income tax rate and equity compensation) compared to income tax benefit of $116.9 million (which includes discrete tax benefits of approximately $3.5 million primarily related to a decrease in our deferred state income tax rate, return to provision adjustments, and equity compensation) for the nine months ended June 30, 2020.

Net Loss We reported a loss from continuing operations of $58.9 million ($0.48 loss per diluted share) on operating revenues of $409.8 million for the three months ended December 31, 2021 compared to a loss from continuing operations of $77.9 million ($0.73 loss per diluted share) on operating revenues of $246.4 million for the three months ended December 31, 2020.

Included in the net loss for the three months ended December 31, 2021 is a loss of $31.0 thousand (with no impact on a per diluted share basis) from discontinued operations.

Including discontinued operations, we recorded a net loss of $51.4 million ($0.48 loss per diluted share) for the three months ended December 31, 2021 compared to a net loss of $70.4 million ($0.66 loss per diluted share) for the three months ended December 31, 2020.

Selling, General and Administrative Expense Selling, general and administrative expenses increased to $43.7 million during the three months ended December 31, 2021 compared to $39.3 million during the three months ended December 31, 2020.

The $4.4 million increase in fiscal year 2022 compared to the same period in fiscal year 2021 is primarily due to higher professional services fees.

Asset Impairment Charge During the three months ended December 31, 2021, we identified two partial rig substructures and two international FlexRig ® drilling rigs that met the asset held-for-sale criteria and were reclassified as assets held-for-sale on our Unaudited Condensed Consolidated Balance Sheets.

The combined net book value of the rig substructures of $2.0 million were written down to their estimated scrap value of $0.1 million, resulting in a non-cash impairment charge of $1.9 million within our North America Solutions segment during the three months ended December 31, 2021 in the Unaudited Condensed Consolidated Statement of Operations.

In conjunction with establishing a plan to sell the two international FlexRig ® drilling rigs, we recognized a non-cash impairment charge of $2.5 million within our International Solutions segment during the three months ended December 31, 2021 in the Unaudited Condensed Consolidated Statement of Operations, as the rigs aggregate net book value of $3.4 million exceeded the fair value of the rigs less estimated cost to sell of $0.9 million.

Gain on Investment Securities In September 2021 H&P purchased a cornerstone equity investment consisting of 159.7 million shares for $100.0 million as part of ADNOC Drilling's initial public offering.

This investment is subject to a three-year lock-up period.

During the three months ended December 31, 2021 we recognized a gain of $47.7 million due to an increase in the fair market value of the stock.

Loss on Extinguishment of Debt On October 27, 2021, we redeemed all of the outstanding 2025 Notes.

Income Taxes We had an income tax benefit of $7.6 million for the three months ended December 31, 2021 (which includes Argentina income tax related to the drilling contract settlement with YPF and discrete tax expense of $3.5 million related to equity compensation) compared to an income tax benefit of $18.1 million (which includes discrete tax expense of approximately $4.1 million related to equity compensation) for the three months ended December 31, 2020.

Our statutory federal income tax rate for fiscal year 2022 is 21.0 percent (before incremental state and foreign taxes).

North America Solutions Operations Segment

Nine Months Ended June 30,

North America Solutions

Three Months Ended December 31,

(in thousands, except operating statistics) 2021 2020 % Change

15 unchanged sentences

Management uses these metrics to analyze historical segment financial results and as the key inputs for forecasting and budgeting segment financial results.

Beginning in the first quarter of fiscal year 2021, these operating metrics replaced previously used per day metrics.

As a result, prior year comparative information is also provided above.

Segment Gross Margin The North America Solutions segment gross margin was $183.7 million for the nine months ended June 30, 2021 compared to $492.8 million in the same period of fiscal year 2020.

The decrease was primarily driven by lower activity levels, lower early termination revenue, lower average rig pricing, and higher rig recommissioning expenses.

Revenues were $733.1 million and $1.3 billion in the nine months ended June 30, 2021 and 2020, respectively.

The decrease in operating revenue is primarily due to the factors mentioned above.

Included in revenues for the nine months ended June 30, 2021 is early termination revenue associated with term contracts of $5.8 million compared to $57.1 million during the same period of fiscal year 2020.

Direct operating expenses decreased to $549.3 million during the nine months ended June 30, 2021 as compared to $832.2 million during the nine months ended June 30, 2020 primarily due to the factors mentioned above.

Depreciation Depreciation decreased to $297.2 million during the nine months ended June 30, 2021 as compared to $336.1 million during the nine months ended June 30, 2020.

The decrease was primarily attributable to rig impairments during fiscal year 2020 and ongoing low levels of capital expenditures.

This resulted in an impairment charge of $56.4 million ($43.3 million, net of tax, or $0.40 per diluted share), for the nine months ended June 30, 2021.

Comparatively, during the nine months ended June 30, 2020, we recorded an impairment charge of $406.5 million ($314.9 million net of tax, or $3.76 per diluted share) resulting from our impairment of our Domestic Conventional, FlexRig3, and FlexRig4 asset groups, in addition to our in-progress drilling equipment and rotational inventory.

Restructuring Charges During the nine months ended June 30, 2021 and 2020, we incurred $3.0 million and $7.2 million, respectively, in restructuring charges.

The charges incurred during the nine months ended June 30, 2021 primarily included charges of $2.9 million related to the relocation of the Houston assembly facility and the downsizing of storage yard facilities.

The charges incurred during the nine months ended June 30, 2020 were primarily comprised of $10.3 million in one-time severance benefits to employees who were voluntarily or involuntarily terminated, offset by a benefit of $3.0 million related to forfeitures and modifications of stock-based compensation awards.

Offshore Gulf of Mexico Operations Segment

Nine Months Ended June 30,

Segment Gross Margin The North America Solutions segment gross margin was $84.5 million for the three months ended December 31, 2021 compared to $44.7 million in the same period of fiscal year 2021.

The increase was primarily driven by a higher average active rig count.

Revenues were $341.0 million and $202.0 million in the three months ended December 31, 2021 and 2020, respectively.

The increase in operating revenue is primarily due to higher activity levels, partially offset by a decrease in early termination revenue.

For the three months ended December 31, 2021, we reported no early termination revenue associated with term contracts compared to $5.8 million during the same period of fiscal year 2021.

Direct operating expenses increased to $256.6 million during the three months ended December 31, 2021 as compared to $157.3 million during the three months ended December 31, 2020.

The increase in direct operating expense was due to higher activity levels and higher rig recommissioning expenses.

Depreciation and Amortization Depreciation and amortization decreased to $93.6 million during the three months ended December 31, 2021 as compared to $100.3 million during the three months ended December 31, 2020.

The decrease was primarily attributable to the termination of depreciation on the six US rigs included in the ADNOC sale in fiscal year 2021 and ongoing low levels of capital expenditures.

Asset Impairment Charge During the three months ended December 31, 2021, we identified two partial rig substructures that met the asset held-for-sale criteria and were reclassified as assets held-for-sale on our Unaudited Condensed Consolidated Balance Sheets.

The combined net book value of these assets of $2.0 million were written down to their estimated scrap value of $0.1 million, resulting in a non-cash impairment charge of $1.9 million during the three months ended December 31, 2021 in the Unaudited Condensed Consolidated Statement of Operations.

Offshore Gulf of Mexico

Three Months Ended December 31,

(in thousands, except operating statistics) 2021 2020 % Change

4 unchanged sentences

Selling, general and administrative expense 757 669 13.2

Restructuring charges — 1,262 (100.0)

Segment operating income $ 5,466 $ 2,742 99.3

6 unchanged sentences

Management uses these metrics to analyze historical segment financial results and as the key inputs for forecasting and budgeting segment financial results.

Beginning in the first quarter of fiscal year 2021, these operating metrics replaced previously used per day metrics.

As a result, prior year comparative information is also provided above.

Segment Gross Margin During the nine months ended June 30, 2021, the Offshore Gulf of Mexico segment gross margin was $21.5 million compared to a gross margin of $19.2 million for the nine months ended June 30, 2020.

This increase was driven by the absence of $3.7 million of bad debt expense that was incurred during the nine months ended June 30, 2020.

We had a 14.4 percent decrease in operating revenue during the nine months ended June 30, 2021 compared to the nine months ended June 30, 2020.

The decrease in operating revenue is primarily due to lower activity levels partially offset by the mix of rigs working as compared to being on standby or mobilization rates.

Direct operating expenses decreased to $73.5 million during the nine months ended June 30, 2021 as compared to $91.7 million during the nine months ended June 30, 2020.

The decrease was primarily driven by the factors described above.

Restructuring Charges We did not incur any restructuring charges during the nine months ended June 30, 2021.

During the nine months ended June 30, 2020, we incurred $1.3 million in restructuring charges.

Charges incurred during the nine months ended June 30, 2020 primarily consisted of employee termination benefits that resulted from our reduction in staffing levels.

International Solutions Operations Segment

Nine Months Ended June 30,

Segment Gross Margin During the three months ended December 31, 2021, the Offshore Gulf of Mexico segment gross margin was $8.6 million compared to a gross margin of $6.0 million for the three months ended December 31, 2020.

This increase was primarily driven by a favorable adjustment in self-insurance liabilities related to prior period claims and the mix of rigs working as compared to being on standby, or mobilization rates.

We had a 9.2 percent decrease in operating revenue during the three months ended December 31, 2021 compared to the three months ended December 31, 2020.

Direct operating expenses decreased to $20.7 million during the three months ended December 31, 2021 as compared to $26.3 million during the three months ended December 31, 2020.

The decrease in operating revenue and expenses was primarily driven by the factors described above.

International Solutions

Three Months Ended December 31,

(in thousands, except operating statistics) 2021 2020 % Change

5 unchanged sentences

Asset impairment charge 2,495 — —

Restructuring charges 207 2,297 (91.0)

Segment operating loss $ (15,353) $ (158,894) (90.3)

Segment operating income (loss) $ 8,049 $ (8,357) (196.3)

Operating Statistics (1) :

5 unchanged sentences

Management uses these metrics to analyze historical segment financial results and as the key inputs for forecasting and budgeting segment financial results.

Beginning in the first quarter of fiscal year 2021, these operating metrics replaced previously used per day metrics.

As a result, prior year comparative information is also provided above.

Segment Gross Margin The International Solutions segment gross margin was $(10.3) million for the nine months ended June 30, 2021 compared to a gross margin of $20.6 million for the nine months ended June 30, 2020.

The change was primarily driven by lower activity levels coupled with fixed minimum levels of country overhead during the nine months ended June 30, 2021.

We had a 66.2 percent decrease in operating revenue during the nine months ended June 30, 2021 compared to the nine months ended June 30, 2020.

The decrease in operating revenue is primarily due to lower activity levels.

Direct operating expenses decreased to $50.9 million during the nine months ended June 30, 2021 as compared to $99.6 million during the nine months ended June 30, 2020 and was driven by the factors described above.

Asset Impairment Charge During the nine months ended June 30, 2021, we recorded no impairment charges, compared to an impairment charge of $156.7 million ($123.8 million net of tax, or $1.45 per diluted share) for the nine months ended June 30, 2020.

Restructuring Charges For the nine months ended June 30, 2021 and 2020, we incurred $0.2 million and $2.3 million in restructuring charges, respectively.

During the nine months ended June 30, 2021, we commenced a voluntary separation program at our local office in Argentina for which we incurred one-time severance charges for employees who were voluntarily terminated.

Charges incurred during the nine months ended June 30, 2020 primarily consisted of employee termination benefits that resulted from our reduction in staffing levels.

Segment Gross Margin The International Solutions segment gross margin was $13.0 million for the three months ended December 31, 2021 compared to a gross margin of $(7.0) million for the three months ended December 31, 2020.

The change was primarily driven by the settlement of a contractual dispute that was recognized in operating revenues.

Refer to Note 9—Revenue from Contracts with Customers for additional details.

Operating revenues increased to $37.2 million during the three months ended December 31, 2021 as compared to $10.5 million during the three months ended December 31, 2020.

Direct operating expenses increased to $24.1 million during the three months ended December 31, 2021 as compared to $17.5 million during the three months ended December 31, 2020.

This increase in both operating revenue and expense was primarily driven by higher activity levels and the settlement of a contractual dispute mentioned above.

Selling, General and Administrative Expense We recognized a $0.8 million increase in selling, general and administrative costs during the three months ended December 31, 2021 compared to the three months ended December 31, 2020.

This increase was primarily driven by higher accrued variable compensation expense.

Asset Impairment Charge During the three months ended December 31, 2021, we identified two international FlexRig ® drilling rigs that met the asset held-for-sale criteria and were reclassified as assets held-for-sale on our Unaudited Condensed Consolidated Balance Sheets.

In conjunction with establishing a plan to sell these rigs we recognized a non-cash impairment charge of $2.5 million during the three months ended December 31, 2021 in the Unaudited Condensed Consolidated Statement of Operations, as the aggregate net book value of $3.4 million exceeded the fair value less estimated cost to sell of $0.9 million.

Other Operations

Results of our other operations, excluding corporate restructuring charges, corporate selling, general and administrative costs and corporate depreciation, are as follows:

Nine Months Ended June 30,

Three Months Ended December 31,

(in thousands) 2021 2020 % Change

5 unchanged sentences

Selling, general and administrative expense 329 381 (13.6)

Restructuring charges — 267 (100.0)

Operating income (loss) $ (1,631) $ 3,704 (144.0)

Gross Margin On October 1, 2019, we elected to utilize the Captive to insure the deductibles for our workers’ compensation, general liability and automobile liability claims programs.

Direct operating costs consisted primarily of adjustments to accruals for estimated losses of $8.8 million and $15.8 million allocated to the Captive during the nine months ended June 30, 2021 and 2020, respectively.

The decrease in estimated losses is primarily due to actuarial valuation adjustments by our third-party actuary as well as lower activity levels.

Intercompany premium revenues recorded by the Captive during the nine months ended June 30, 2021 and 2020 amounted to $25.2 million and $28.9 million, respectively, which were eliminated upon consolidation.

Operating income $ 3,929 $ 4,111 (4.4)

Gross Margin On October 1, 2019, we elected to capitalize a new Captive insurance company to insure the deductibles for our domestic workers’ compensation, general liability and automobile liability claims programs, and to continue the practice of insuring deductibles from the Company's international casualty and rig property programs.

Direct operating costs consisted primarily $(2.2) million and $0.5 million in adjustments to accruals for estimated losses allocated to the Captives and rig casualty insurance premiums of $8.8 million and $2.5 million during the three months ended December 31, 2021 and 2020, respectively, and were recorded within drilling services operating expenses in our Unaudited Condensed Statement of Operations.

The decrease in estimated losses is primarily due to actuarial valuation adjustments by our third-party actuary.

Intercompany premium revenues recorded by the Captives during the three months ended December 31, 2021 and 2020 amounted to $13.6 million and $7.1 million, respectively, which were eliminated upon consolidation.

Liquidity and Capital Resources

8 unchanged sentences

Agency issued debt securities, corporate bonds and commercial paper, certificates of deposit and money market funds.

Likewise, if we are generating excess cash flows or have cash balances on hand beyond our near-term needs, we generally invest in highly rated short‑term money market and debt securities.

These investments can include U.S.

Treasury securities, U.S.

Agency issued debt securities, corporate bonds and commercial paper, certificates of deposit and money market funds.

However, in some international locations we may make short-term investments that are less conservative, as equivalent highly rated investments are unavailable.

See—Note 2—Summary of Significant Accounting Policies, Risks and Uncertainties—International Solutions Drilling Risks.

We may seek to access the debt and equity capital markets from time to time to raise additional capital, increase liquidity as necessary, fund our additional purchases, exchange or redeem senior notes, or repay any amounts under the 2018 Credit Facility.

Our ability to access the debt and equity capital markets depends on a number of factors, including our credit rating, market and industry conditions and market perceptions of our industry, general economic conditions, our revenue backlog and our capital expenditure commitments.

The effects of the COVID-19 outbreak and the oil price collapse in 2020 have had significant adverse consequences for general economic, financial and business conditions, as well as for our business and financial position and the business and financial position of our customers, suppliers and vendors and may, among other things, impact our ability to generate cash flows from operations, access the capital markets on acceptable terms or at all and affect our future need or ability to borrow under the 2018 Credit Facility.

The ongoing effects of the COVID-19 pandemic and the oil price collapse in 2020 have had significant ongoing adverse consequences for general economic, financial and business conditions, as well as for our business and financial position and the business and financial position of our customers, suppliers and vendors and may, among other things, impact our ability to generate cash flows from operations, access the capital markets on acceptable terms or at all and affect our future need or ability to borrow under the 2018 Credit Facility.

In addition to our potential sources of funding, the effects of such global events may impact our liquidity or need to alter our allocation or sources of capital, implement additional cost reduction measures and further change our financial strategy.

Although the COVID-19 outbreak and the oil price collapse could have a broad range of effects on our sources and uses of liquidity, the ultimate effect thereon, if any, will depend on future developments, which cannot be predicted at this time.

Our cash flows fluctuate depending on a number of factors, including, among others, the number of our drilling rigs under contract, the revenue we receive under those contracts, the efficiency with which we operate our drilling units, the timing of collections on outstanding accounts receivable, the timing of payments to our vendors for operating costs, and capital expenditures, all of which was impacted by the COVID-19 outbreak and the oil price collapse in 2020.

Although the COVID-19 pandemic and the oil price liquidity could have a broad range of effects on our sources and uses of liquidity, the ultimate effect thereon, if any, will depend on future developments, which cannot be predicted at this time.

As our revenues increase, operating net working capital is typically a use of capital, while conversely, as our revenues decrease, operating net working capital is typically a source of capital.

To date, general inflationary trends have not had a material effect on our operating margins.

As of June 30, 2021, we had $370.6 million of cash and cash equivalents on hand and $187.3 million of short-term investments.

Our cash flows for the nine months ended June 30, 2021 and 2020 are presented below:

Nine Months Ended June 30,

As of December 31, 2021, we had $234.2 million of cash and cash equivalents on hand and $207.1 million of short-term investments.

Our cash flows for the three months ended December 31, 2021 and 2020 are presented below:

Three Months Ended December 31,

(in thousands) 2021 2020

Net cash provided by (used in):

Net cash used in:

Operating activities $ (3,718) $ (19,604)

1 unchanged sentence

Financing activities (635,610) (29,287)

Net increase (decrease) in cash and cash equivalents and restricted cash $ (114,875) $ 93,253

Net decrease in cash and cash equivalents and restricted cash $ (684,057) $ (114,094)

Operating Activities

For the purpose of understanding the impact on our cash flows from operating activities, operating net working capital is calculated as current assets, excluding cash and cash equivalents, short-term investments, and assets held-for-sale, less current liabilities, excluding dividends payable, short-term debt and the current portion of long-term debt.

Operating net working capital was $177.7 million as of June 30, 2021 compared to $194.2 million as of September 30, 2020.

The sequential decrease in net working capital was primarily driven by the collection of a $32.1 million income tax receivable during the second quarter of fiscal year 2021, partially offset by activity-driven increases in other components of our operating net working capital.

Included in accounts receivable as of June 30, 2021 was $23.1 million of income tax receivables.

Cash flows provided by operating activities were approximately $89.8 million and $446.3 million for the nine months ended June 30, 2021 and 2020, respectively.

The decrease in cash provided by operating activities is primarily driven by lower operating activity and lower pricing.

Management believes that operating net working capital is important for the purpose of understanding the impact of our operating activities on our cash flows.

Operating net working capital is calculated as current assets, excluding cash and cash equivalents, short-term investments, and assets held-for-sale, less current liabilities, excluding dividends payable and short-term debt.

Operating net working capital was $78.5 million as of December 31, 2021 compared to $43.4 million as of September 30, 2021.

The sequential increase in net working capital was primarily driven by higher rig activity and seasonal payments of annual incentive compensation and ad valorem taxes.

Included in accounts receivable as of December 31, 2021 was $24.4 million of income tax receivables.

Cash flows used in operating activities were approximately $3.7 million and $19.6 million for the three months ended December 31, 2021 and 2020, respectively.

The change in cash used in operating activities is primarily driven by higher operating activity.

Investing Activities

Capital Expenditures Our capital expenditures during the nine months ended June 30, 2021 were $49.2 million compared to $121.0 million during the nine months ended June 30, 2020.

The decrease is driven by lower maintenance capital expenditures as a result of lower activity.

Purchase of Investments Our net purchases of investments during the nine months ended June 30, 2021 were $97.4 million compared to net purchases of $12.3 million during the nine months ended June 30, 2020.

The increase in purchases is attributable to our strategy to optimize our returns on investment.

Sale of Subsidiary In December 2019, we closed on the sale of a wholly-owned subsidiary of Helmerich & Payne International Drilling Co., TerraVici Drilling Solutions, Inc.

("TerraVici").

As a result of the sale, 100% of TerraVici's outstanding capital stock was transferred to the purchaser in exchange for approximately $15.1 million, resulting in a total gain on the sale of TerraVici of approximately $15.0 million.

Equity Securities As of June 30, 2021, our equity securities primarily consist of common shares in Schlumberger, Ltd.

that, at the close of the third quarter of fiscal year 2021, had a fair value of $15.0 million.

The value of our securities are subject to fluctuation in the market and may vary considerably over time.

This investment is recorded at fair value on our Unaudited Condensed Consolidated Balance Sheets.

Capital Expenditures Our capital expenditures during the three months ended December 31, 2021 were $44.0 million compared to $14.0 million during the three months ended December 31, 2020.

The increase is driven by higher activity and spending on walking rig conversions.

Purchase (Sales) of Short-Term Investments Our net purchases of short-term investments during the three months ended December 31, 2021 were $9.3 million compared to net purchases of $57.1 million during the three months ended December 31, 2020.

The decrease in net purchases is driven by our ongoing liquidity management.

Purchase of Long-Term Investments Our purchases of long-term investments during the three months ended December 31, 2021 were $9.0 million compared to $1.0 million during the three months ended December 31, 2020.

The increase is driven by additional purchases of geothermal investments made during the quarter.

Sale of Assets Our proceeds from asset sales during the three months ended December 31, 2021 were $21.5 million compared to proceeds of $6.8 million during the three months ended December 31, 2020.

The increase in proceeds is driven by the sale of our casing running and trucking assets and higher rig activity which drives higher reimbursement from customers for lost or damaged drill pipe.

Financing Activities

Dividends We paid dividends of $0.25 per share during the three months ended December 31, 2021 and 2020.

Total dividends paid were $27.3 million and $26.9 million during the three months ended December 31, 2021 and 2020, respectively.

A cash dividend of $0.25 per share was declared on September 1, 2021 for shareholders of record on November 23, 2021, payable on December 1, 2021.

The declaration and amount of future dividends is at the discretion of the Board and subject to our financial condition, results of operations, cash flows, and other factors the Board deems relevant.

Redemption of 4.65% Senior Notes due 2025 On October 27, 2021, we redeemed all of the outstanding 2025 Notes, resulting in a cash outflow of $487.1 million.

As a result, the associated make-whole premium of $56.4 million was paid during the first fiscal quarter of 2022 contemporaneously with the October 27, 2021 debt extinguishment.

Repurchase of Shares We have an evergreen authorization from the Board of Directors (the "Board") for the repurchase of up to four million common shares in any calendar year.

The repurchases may be made using our cash and cash equivalents or other available sources.

We had a $28.5 million cash outflow for repurchases of common shares during the nine months ended June 30, 2020.

There were no purchases of common shares during the nine months ended June 30, 2021.

Dividends We paid dividends of $0.75 and $2.13 per share during the nine months ended June 30, 2021 and 2020, respectively.

Total dividends paid were $81.8 million and $233.1 million during the nine months ended June 30, 2021 and 2020, respectively.

A cash dividend of $0.25 per share was declared on June 2, 2021 for shareholders of record on August 17, 2021, payable on August 31, 2021.

The declaration and amount of future dividends is at the discretion of the Board and subject to our financial condition, results of operations, cash flows, and other factors the Board deems relevant.

During the three months ended December 31, 2021, we repurchased 2.5 million common shares at an aggregate cost of $60.4 million, which are held as treasury shares.

Credit Facilities

4 unchanged sentences

The 2018 Credit Facility has $750.0 million in aggregate availability with a maximum of $75.0 million available for use as letters of credit.

As of June 30, 2021, there were no borrowings or letters of credit outstanding, leaving $750.0 million available to borrow under the 2018 Credit Facility.

As of December 31, 2021, there were no borrowings or letters of credit outstanding, leaving $750.0 million available to borrow under the 2018 Credit Facility.

For a full description of the 2018 Credit Facility, see Note 7—Debt to the consolidated financial statements in our 2021 Annual Report on Form 10-K.

As of June 30, 2021, we had two outstanding letters of credit with banks, in the amounts of $24.8 million and $2.1 million, respectively.

As of June 30, 2021, we also had a $20.0 million unsecured standalone line of credit facility, for the purpose of obtaining the issuance of international letters of credit, bank guarantees, and performance bonds.

Of the $20.0 million, $1.8 million of financial guarantees were outstanding as of June 30, 2021.

As of December 31, 2021, we had five separate bi-lateral credit facilities with banks with an aggregate outstanding balance of $30.4 million.

As of December 31, 2021, we also had a $20.0 million unsecured standalone line of credit facility, for the purpose of obtaining the issuance of international letters of credit, bank guarantees, and performance bonds.

Of the $20.0 million, $5.8 million of financial guarantees were outstanding as of December 31, 2021.

The applicable agreements for all unsecured debt contain additional terms, conditions and restrictions that we believe are usual and customary in unsecured debt arrangements for companies that are similar in size and credit quality.

At June 30, 2021, we were in compliance with all debt covenants, and we anticipate that we will continue to be in compliance during the next quarter of fiscal year 2021.

On December 20, 2018, we issued approximately $487.1 million in aggregate principal amount of 4.65 percent unsecured senior notes due 2025 (the "Company 2025 Notes").

Interest on the Company 2025 Notes is payable semi-annually on March 15 and September 15 of each year, commencing March 15, 2019.

The debt issuance costs are being amortized straight-line over the stated life of the obligation, which approximates the effective interest method.

At December 31, 2021, we were in compliance with all debt covenants, and we anticipate that we will continue to be in compliance during the next quarter of fiscal year 2022.

2.90% Senior Notes due 2031 On September 29, 2021, we issued $550.0 million aggregate principal amount of the 2.90 percent 2031 Notes in an offering to persons reasonably believed to be qualified institutional buyers in the United States pursuant to Rule 144A under the Securities Act (“Rule 144A”) and to certain non-U.S.

persons in transactions outside the United States pursuant to Regulation S under the Securities Act (“Regulation S”).

Interest on the 2031 Notes is payable semi-annually on March 29 and September 29 of each year, commencing on March 29, 2022.

The 2031 Notes will mature on September 29, 2031 and bear interest at a rate of 2.90 percent per annum.

The indenture governing the 2031 Notes contains certain covenants that, among other things and subject to certain exceptions, limit the ability of the Company and its subsidiaries to incur certain liens;

engage in sale and lease-back transactions;

and consolidate, merge or transfer all or substantially all of the assets of the Company.

The indenture governing the 2031 Notes also contains customary events of default with respect to the 2031 Notes.

4.65% Senior Notes due 2025 On December 20, 2018, we issued approximately $487.1 million in aggregate principal amount of the 2025 Notes.

Interest on the 2025 Notes was payable semi-annually on March 15 and September 15 of each year, commencing on March 15, 2019.

The debt issuance cost was being amortized straight-line over the stated life of the obligation, which approximated the effective interest method.

On September 27, 2021, the Company delivered a conditional notice of optional full redemption for all of the outstanding 2025 Notes at a redemption price calculated in accordance with the indenture governing the 2025 Notes, plus accrued and unpaid interest on the 2025 Notes to be redeemed.

The Company financed the redemption of the 2025 Notes with the net proceeds from the offering of the 2031 Notes, together with cash on hand.

The Company’s obligation to redeem the 2025 Notes was conditioned upon the prior consummation of the issuance of the 2031 Notes, which was satisfied on September 29, 2021.

On October 27, 2021, we redeemed all of the outstanding 2025 Notes.

Future Cash Requirements

2 unchanged sentences

If needed, we may decide to obtain additional funding from our $750.0 million 2018 Credit Facility.

Our indebtedness under our unsecured senior notes totaled $487.1 million at June 30, 2021 and matures on March 19, 2025.

As of June 30, 2021, we had a $584.6 million deferred tax liability on our Unaudited Condensed Consolidated Balance Sheets, primarily related to temporary differences between the financial and income tax basis of property, plant and equipment.

We currently do not anticipate the need to draw on the 2018 Credit Facility.

Our indebtedness under our unsecured senior notes totaled $550.0 million at December 31, 2021 and matures on September 29, 2031.

As of December 31, 2021, we had a $545.9 million deferred tax liability on our Unaudited Condensed Consolidated Balance Sheets, primarily related to temporary differences between the financial and income tax basis of property, plant and equipment.

Our levels of capital expenditures over the last several years have been subject to accelerated depreciation methods (including bonus depreciation) available under the Internal Revenue Code of 1986, as amended, enabling us to defer a portion of cash tax payments to future years.

1 unchanged sentence

We expect to be able to meet any such obligations utilizing cash and investments on hand, as well as cash generated from ongoing operations.

The long-term debt to total capitalization ratio was 13.9 percent and 12.8 percent at June 30, 2021 and September 30, 2020, respectively.

At December 31, 2021, we had $4.6 million recorded for uncertain tax positions and related interest and penalties.

However, the timing of such payments to the respective taxing authorities cannot be estimated at this time.

The long-term debt to total capitalization ratio was 16.5 percent and 15.9 percent at December 31, 2021 and September 30, 2021, respectively.

For additional information regarding debt agreements, refer to Note 6—Debt to the Unaudited Condensed Consolidated Financial Statements.

There were no other significant changes in our financial position since September 30, 2021.

Off-balance Sheet Arrangements

We have no off-balance sheet arrangements as that term is defined in Item 303(a)(4)(ii) of Regulation S-K.

For information regarding our drilling contract backlog, see Item 2— “Management's Discussion and Analysis of Financial Condition and Results of Operations—Contract Backlog”.

Material Commitments

Material commitments as reported in our 2020 Annual Report on Form 10-K have not changed significantly at June 30, 2021, other than those disclosed in Note 13—Commitments and Contingencies to the Unaudited Condensed Consolidated Financial Statements.

Material commitments as reported in our 2021 Annual Report on Form 10-K have not changed significantly at December 31, 2021, other than those disclosed in Note 6—Debt and Note 13—Commitments and Contingencies to the Unaudited Condensed Consolidated Financial Statements.

Critical Accounting Policies and Estimates

1 unchanged sentence

There have been no material changes in these critical accounting policies and estimates.

Recently Issued Accounting Standards

Recently Issued Accounting Policies

See Note 2—Summary of Significant Accounting Policies, Risks and Uncertainties to the Unaudited Condensed Consolidated Financial Statements for recently adopted accounting standards and new accounting standards not yet adopted.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis