What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-07-27 compared with 2022-04-27 · 190 added, 182 removed, 384 unchanged (49% of the section changed)

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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”).

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.

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, and financing and funding 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.

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• the volatility of future oil and natural gas prices;

• contracting of our rigs and actions by current or potential customers;

• 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;

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• impact of geopolitical developments and tensions, war and uncertainty in oil-producing countries (including the invasion of Ukraine by Russia and any related political or economic responses and counter-responses or otherwise by various global actors or the general effect on the global economy);

• global economic conditions, such as a general slowdown in the global economy and inflationary pressures, and their impact on the Company;

• 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;

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• our sustainability strategy, including expectations, plans, or goals related to corporate responsibility, sustainability and environmental matters, and any 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.

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 Part I, Item 1A— “Risk Factors,” and Part II, 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.

Because of the underlying risks and uncertainties, we caution you against placing undue reliance on these forward-looking statements.

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(“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 March 31, 2022, 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 March 31, 2022.

At the close of the second quarter of fiscal year 2022, we had 181 contracted rigs, of which 106 were under a fixed-term contract and 75 were working well-to-well, compared to 137 contracted rigs at September 30, 2021.

As of June 30, 2022, our drilling rig fleet included a total of 271 drilling rigs.

At the close of the third quarter of fiscal year 2022, we had 188 contracted rigs, of which 122 were under a fixed-term contract and 66 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.

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land drilling industry.

The advent of unconventional drilling for oil in the United States began in early 2009 and continues to evolve as E&Ps drill longer lateral wells with tighter well spacing.

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.

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

The progression of longer lateral wells has required many of the industry’s rigs to be upgraded to certain specifications in order to meet the technical challenges of drilling longer lateral wells.

The upgraded rigs meeting those specifications are commonly referred to in the industry as super-spec rigs and have the following specific characteristics:

The technical requirements of drilling longer lateral unconventional shale wells often necessitate the use of rigs that are commonly referred to in the industry as super-spec rigs and have the following specific characteristics:

AC drive, minimum of 1,500 horsepower drawworks, minimum of 750,000 lbs.

hookload rating, 7,500 psi mud circulating system, and multiple-well pad capability.

The technical requirements of drilling longer lateral wells often necessitate the use of super-spec rigs and even when not required for shorter lateral wells, there is a strong customer preference for super-spec due to the drilling efficiencies gained in utilizing a super-spec rig.

There is a strong customer preference for super-spec rigs not only due to the higher rig specifications that enable more technical drilling but also due to the drilling efficiencies gained in utilizing a super-spec rig.

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

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 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.

Crude oil prices stabilized during the back half of calendar 2020 and were in the $40 to $50 per barrel range as customers set their capital budgets for calendar year 2021.

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.

The capital budgets for calendar year 2022 established by our customers were done so in a higher crude oil price environment compared to the prior year, which suggests a higher level of capital spending and activity in calendar year 2022 compared to calendar year 2021.

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

More recently the invasion of Ukraine by Russia caused crude oil prices to spike well above $100 per barrel.

However, as we have experienced in recent years, our customers have maintained a disciplined approach to their operations and kept capital spending levels as originally planned.

We have noted no material reaction in customer behavior resulting from the spike in crude oil prices.

In the U.S., the demand for super-spec rigs continues to strengthen following higher capital spending by E&Ps in both calendar year 2021 and year to date 2022.

While there is still idle super-spec rig capacity in the market, much of that idle capacity represents rigs that have not been active during the preceding two years and in some cases even longer.

Consequently, there are additional costs that would be incurred to bring those long-idled rigs back into working condition, which has resulted in upward pricing for super-spec rigs.

This supply-demand dynamic combined with the value proposition we provide our customers through our drilling expertise, high-quality FlexRig fleet, and automation technology has resulted in an improvement in our underlying contract economics.

We believe these improvements will become more apparent in the coming quarters as an increasing amount of our active rigs are re-priced at higher rates.

Our North America Solutions active rig count has more than tripled from 47 rigs in August 2020 to 171 rigs at March 31, 2022.

To date, our fiscal 2022 rig count increases appear to mirror those of 2021 with 27 rigs added during the first quarter and 17 rigs added during the second quarter of fiscal 2022 compared to 25 rigs and 15 rigs added for the same fiscal quarters in the prior year, respectively.

Considering the Company's disciplined approach to deploying capital, maintaining our fiscal year 2022 capital budget of $250 to $270 million, and given the current market dynamics, we expect our active count to grow at a much more muted pace during the remaining quarters in fiscal year 2022.

We are the largest provider of super-spec rigs in the industry and accordingly we believe we are well positioned to respond to various market conditions.

Historically there has been a strong correlation between crude oil and natural gas prices and the demand for drilling rigs with the rig count increasing and decreasing with the up and down movements in the commodity prices.

However, beginning in 2021, rig activity has not moved in tandem with crude oil prices to the same extent it had historically as a large portion of our customers instituted a more disciplined approach to their operations and capital spending in order to enhance their own financial returns.

Those customers established capital budgets based upon commodity price assumptions for the upcoming year and adhered to them, not adjusting activity plans as commodity prices moved.

The capital budgets for calendar year 2022 established by our customers were done so in a higher crude oil price environment compared to the prior year, resulting in a higher level of capital spending and activity in calendar year 2022 compared to calendar year 2021.

In the U.S., this caused the demand for super-spec rigs to continue to strengthen.

Despite this increased demand for super-spec rigs there is still idle super-spec rig capacity in the market;

however, much of that idle capacity represents rigs that have not been active during the preceding two years and in some cases even longer.

Consequently, there are additional costs that would be incurred to bring those long-idled rigs back into working condition, which resulted in upward pricing for super-spec rigs.

This supply-demand dynamic combined with the value proposition we provide our customers through our drilling expertise, high-quality FlexRig fleet, and automation technology resulted in an improvement in our underlying contract economics.

We believe these improvements will likely continue in the coming quarters as an increasing number of our rigs are re-priced at higher rates.

Our North America Solutions active rig count has more than tripled from COVID pandemic lows of 47 rigs in August 2020 to 175 rigs at June 30, 2022.

Considering our disciplined approach to deploying capital and maintaining our fiscal year 2022 capital budget of $250 to $270 million, and given the current market dynamics, we expect our active count to reach 176 in the fourth fiscal quarter of fiscal year 2022.

Looking beyond our fiscal year 2022 into fiscal 2023, we do expect further increases in our rig count as customers reset their capital budgets for calendar 2023 using higher commodity price assumptions than were used for calendar 2022 capital budgets..

While H&P stands ready to respond to the future demand for its super-spec rigs, we will do so by applying the same disciplined approach, focusing on financial returns.

That said, the market for our rigs and others like them in the industry will likely remain tight as supply-chain challenges and labor constraints experienced across the energy industry may inhibit the industry’s ability overall to supply a significant quantity of super-specs rigs.

As a result of increased customer demand and limited competitive supply we expect the momentum of the upward pressure on pricing to continue into fiscal 2023.

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;

however, activity levels in the International Solutions segment are also subject to other various geopolitical and financial factors specific to the countries of our operations.

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.

From a financial perspective, we believe the Company is well positioned to manage through events, even protracted ones, that may result from market disruptions and the related commodity price volatility.

More recent events, like the COVID-19 global pandemic and the Russian invasion of Ukraine, have elevated commodity price volatility and have other far reaching global market ramifications.

The direct impacts of the COVID-19 pandemic on the Company have diminished significantly as health guidelines and restrictions have eased in most jurisdictions in which we operate.

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 did not have a significant impact on service.

Recently, the conflict between the Russian Federation and Ukraine, and the international and social sanctions in reaction to the conflict have resulted in an increase in commodity price volatility.

The Company does not have any operations in the Russia Federation, Ukraine or adjacent regions and therefore our rig activity levels are not directly impacted by this conflict.

While we do not have supplies originating in these countries, the conflict may create some inflationary pressures within our supply chain.

While we do not expect much activity change in our Offshore Gulf of Mexico segment, we do expect margin improvements based on recent rate increases.

Regarding our International Solutions segment, we see opportunities for improvement in activity and the related corresponding margin improvement, but those will likely occur on a more extended timeline compared to what we have experienced in the North America Solutions segment.

Recent Developments

Investments in Geothermal Energy

During the six months ended March 31, 2022 , we made an additional $14.1 million in geothermal energy investments consisting of both debt and equity securities.

During the nine months ended June 30, 2022 , we made an additional $14.3 million in geothermal energy investments consisting of both debt and equity securities.

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

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The EGS concept uses horizontal drilling, induced permeability, and fiber optic sensing.

The closed loop concepts use multilateral wellbores, propriety working fluid, or coaxial pipe configurations.

The closed loop concepts use multilateral wellbores, proprietary working fluid, or coaxial pipe configurations.

All of these concepts are designed to harvest geothermal heat to create carbon-free, baseload energy.

Our aggregate balance of investments in geothermal energy companies was $16.9 million at March 31, 2022 .

Our aggregate balance of investments in geothermal energy companies was $17.0 million at June 30, 2022 .

Investment in ADNOC Drilling

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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 and six months ended March 31, 2022, we recognized a gain of $16.7 million and $64.5 million, respectively, in our Unaudited Condensed Consolidated Statement of Operations.

As of March 31, 2022, 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.

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 the contractual restriction on the sale of an equity security that is publicly traded is not considered in measuring fair value.

During the three and nine months ended June 30, 2022, we recognized a gain (loss) of $(17.0) million and $47.8 million, respectively, in our Unaudited Condensed Consolidated Statement of Operations.

As of June 30, 2022, this investment is classified as a Level 1 investment based on the quoted stock price on the Abu Dhabi Securities Exchange.

During the three months ended June 30, 2022, we also received dividends in the amount of $3.2 million as a result of this investment.

Investment in Galileo Technologies

During April 2022, the Company made a $33.0 million cornerstone investment in an affiliate of Galileo Technologies ("Galileo") in the form of a convertible note.

The convertible note bears interest at 5% per annum and matures on April 2027.

If the conversion option is exercised, the note would convert into common shares of Galileo.

One of our Directors is an independent director of Galileo.

This Director does not have a direct or indirect material interest in the transaction and was not involved in the negotiations or any approvals related to the transaction.

During the three months ended June 30, 2022, the Company made a $33.0 million cornerstone investment in Galileo Holdco 2 Limited Technologies ("Galileo Holdco 2"), part of the group of companies known as Galileo Technologies (“Galileo”) in the form of a convertible note.

Galileo specializes in liquification, natural gas compression and re-gasification modular systems and technologies to make the production, transportation, and consumption of natural gas, biomethane, and hydrogen more economically viable.

The convertible note bears interest at 5.0 percent per annum with a maturity date of the earlier of April 2027 or an exit event (as defined in the agreement as either an initial public offering or a sale of Galileo).

If the conversion option is exercised, the note would convert into common shares of the parent of Galileo Holdco 2 ("Galileo Parent").

Two of our Directors are independent directors of Galileo Parent.

Neither Director has a direct or indirect material interest in the transaction.

Pension Plan Lump-sum Distribution

During March 2022, the Company's domestic noncontributory defined benefit pension plan was amended to include a limited lump sum distribution option and a special eligibility window to be available to certain participants.

During the period beginning on May 2, 2022 and ending on June 30, 2022, these participants could elect the limited lump sum distribution, to be paid in August 2022.

As a result, we estimate additional one time pension settlement charges in the range of $7.0 to $9.0 million to be incurred during the fourth fiscal quarter of 2022.

Contract Backlog

As of March 31, 2022 and September 30, 2021, our contract drilling backlog, being the expected future dayrate revenue from executed contracts, was $727.7 million and $572.0 million, respectively.

As of June 30, 2022 and September 30, 2021, our contract drilling backlog, being the expected future dayrate revenue from executed contracts, was $862.2 million and $572.0 million, respectively.

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

The increase in backlog at March 31, 2022 from September 30, 2021 is primarily due to an increase in the number of fixed term drilling contracts executed.

Approximately 39.8 percent of the March 31, 2022 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 March 31, 2022 and September 30, 2021, and the percentage of the March 31, 2022 backlog reasonably expected to be fulfilled in fiscal year 2023 and thereafter:

(in millions) March 31, 2022 September 30, 2021 Percentage Reasonably Expected to be Filled in Fiscal Year 2023 and Thereafter

The increase in backlog at June 30, 2022 from September 30, 2021 is primarily due to an increase in the number of fixed term drilling contracts executed.

Approximately 60.7 percent of the June 30, 2022 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 June 30, 2022 and September 30, 2021, and the percentage of the June 30, 2022 backlog reasonably expected to be fulfilled in fiscal year 2023 and thereafter:

(in millions) June 30, 2022 September 30, 2021 Percentage Reasonably Expected to be Filled in Fiscal Year 2023 and Thereafter

North America Solutions $ 628.8 $ 429.6 53.2 %

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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 March 31, 2022 and 2021

Results of Operations for the Three Months Ended June 30, 2022 and 2021

Consolidated Results of Operations

Net Loss We reported a loss from continuing operations of $4.6 million ($0.05 loss per diluted share) on operating revenues of $467.6 million for the three months ended March 31, 2022 compared to a loss from continuing operations of $123.3 million ($1.15 loss per diluted share) on operating revenues of $296.2 million for the three months ended March 31, 2021.

Included in the net loss for the three months ended March 31, 2022 is a loss of $0.4 million (with no impact on a per diluted share basis) from discontinued operations.

Including discontinued operations, we recorded a net loss of $5.0 million ($0.05 loss per diluted share) for the three months ended March 31, 2022 compared to a net loss of $121.0 million ($1.13 loss per diluted share) for the three months ended March 31, 2021.

Selling, General and Administrative Expense Selling, general and administrative expenses increased to $47.1 million during the three months ended March 31, 2022 compared to $39.3 million during the three months ended March 31, 2021.

The $7.8 million increase in fiscal year 2022 compared to the same period in fiscal year 2021 is primarily due to increases in IT infrastructure spending and professional services fees.

Asset Impairment Charge During the three months ended March 31, 2022, we reported no asset impairment charge in the Unaudited Condensed Consolidated Statement of Operations, compared to an impairment charge of $54.3 million for the three months ended March 31, 2021.

Gain on Investment Securities In September 2021, the Company made a cornerstone equity investment consisting of 159.7 million shares for $100.0 million as part of ADNOC Drilling's initial public offering.

Net Income (Loss) We reported income from continuing operations of $17.5 million ($0.16 per diluted share) on operating revenues of $550.2 million for the three months ended June 30, 2022 compared to 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.

Included in net income for the three months ended June 30, 2022 is income of $0.3 million (with no impact on a per diluted share basis) from discontinued operations.

Including discontinued operations, we recorded net income of $17.8 million ($0.16 per diluted share) for the three months ended June 30, 2022 compared to a net loss of $55.6 million ($0.52 loss per diluted share) for the three months ended June 30, 2021.

Selling, General and Administrative Expense Selling, general and administrative expenses increased to $44.9 million during the three months ended June 30, 2022 compared to $41.7 million during the three months ended June 30, 2021.

The $3.2 million increase in fiscal year 2022 compared to the same period in fiscal year 2021 is primarily due to increases in labor and IT infrastructure expense.

Asset Impairment Charge During the three months ended June 30, 2022, we reported no asset impairment charges compared to an impairment charge of $2.1 million for the three months ended June 30, 2021 as three Domestic non super-spec rigs were reclassified as assets held-for sale and the book values of these rigs were written down to their fair value less cost to sell of $0.4 million.

Loss on Investment Securities During the three months ended June 30, 2022, we recognized an aggregate net loss of $14.3 million on investment securities.

This loss was primarily comprised of a $17.0 million loss on our equity investment in ADNOC Drilling caused by a decrease in the fair market value of the stock.

In September 2021, the Company made 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 March 31, 2022 we recognized a gain of $16.7 million due to an increase in the fair market value of the stock.

Income Taxes We have historically calculated our provision for income taxes during interim reporting periods by applying the estimated annual effective tax rate for the full year to pre-tax income or loss, excluding discrete items, for the reporting period.

We used a discrete effective tax rate method to calculate income taxes for the three months ended March 31, 2022 as we determined the historical annualized effective rate method would not provide a reliable estimate for the three months ended March 31, 2022.

We anticipate utilizing the discrete effective tax rate method to calculate the provision for income taxes for the remainder of this fiscal year.

For the three months ended March 31, 2022, we had an income tax expense of $2.7 million compared to an income tax benefit of $36.6 million for the three months ended March 31, 2021.

During the three months ended June 30, 2022, we sold our remaining equity securities of approximately 467.5 thousand shares in Schlumberger, Ltd.

and received proceeds of approximately $22.0 million.

For the three months ended June 30, 2022, we recorded a gain of $2.7 million related to this investment, which included a $0.5 million gain recognized upon the sale of our investment and a $2.2 million gain related to valuation adjustments.

Income Taxes We had income tax expense of $1.7 million for the three months ended June 30, 2022 (which includes discrete tax expense of approximately $6.5 million primarily related to an increase in our deferred state income tax rate and return to provision adjustments) compared to 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 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 2022 is 21.0 percent (before incremental state and foreign taxes).

North America Solutions

Three Months Ended March 31,

Three Months Ended June 30,

(in thousands, except operating statistics) 2022 2021

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accordingly, 'average active rigs' represents the average number of rigs generating revenue during the applicable time period.

This metric is calculated by dividing revenue days by total days in the applicable period (i.e.

This metric is calculated by dividing revenue days by total days in the applicable period (e.g.

91 days for the three months ended June 30, 2022 and 2021).

(5) Defined as the number of rigs generating revenue at the applicable end date of the time period.

Operating Revenues Operating revenues were $408.8 million and $249.9 million in the three months ended March 31, 2022 and 2021, respectively.

Operating Revenues Operating revenues were $486.0 million and $281.1 million in the three months ended June 30, 2022 and 2021, respectively.

The 72.9 percent increase in operating revenue is primarily due to a 45.5 percent increase in activity levels and higher pricing levels.

Direct Operating Expenses Direct operating expenses increased to $294.4 million during the three months ended March 31, 2022 as compared to $185.8 million during the three months ended March 31, 2021.

Direct Operating Expenses Direct operating expenses increased to $318.4 million during the three months ended June 30, 2022 as compared to $206.2 million during the three months ended June 30, 2021.

The increase in direct operating expense was due to higher activity levels and an increase in field wages in December of 2021.

Depreciation and Amortization Depreciation and amortization decreased to $95.8 million during the three months ended March 31, 2022 as compared to $99.9 million during the three months ended March 31, 2021.

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

Asset Impairment Charge During the three months ended March 31, 2022, we reported no asset impairment charge, compared to an impairment charge of $54.3 million for the three months ended March 31, 2021.

Depreciation and Amortization Depreciation and amortization decreased to $93.6 million during the three months ended June 30, 2022 as compared to $97.0 million during the three months ended June 30, 2021.

The decrease was primarily attributable to the termination of depreciation on six rigs located in the U.S.

that were included in the ADNOC sale during the fourth quarter of fiscal year 2021 coupled with ongoing relatively low levels of capital expenditures.

Asset Impairment Charge During the three months ended June 30, 2022, we reported no asset impairment charge, compared to an impairment charge of $2.1 million for the three months ended June 30, 2021 as three Domestic non super-spec rigs were reclassified as assets held-for sale and the book values of these rigs were written down to their fair value less cost to sell of $0.4 million.

Offshore Gulf of Mexico

Three Months Ended March 31,

Three Months Ended June 30,

(in thousands, except operating statistics) 2022 2021 % Change

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(2) Direct margin, which is considered a non-GAAP metric, is defined as operating revenues less direct operating expenses and is included as a supplemental disclosure because we believe it is useful in assessing and understanding our current operational performance, especially in making comparisons over time.

See — Non-GAAP Measurements below for a reconciliation of segment operating income to direct margin.

See — Non-GAAP Measurements below for a reconciliation of segment operating income (loss) to direct margin.

(3) Defined as the number of contractual days we recognized revenue for during the period.

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accordingly, 'average active rigs' represents the average number of rigs generating revenue during the applicable time period.

This metric is calculated by dividing revenue days by total days in the applicable period (i.e.

This metric is calculated by dividing revenue days by total days in the applicable period (e.g.

91 days for the three months ended June 30, 2022 and 2021).

(5) Defined as the number of rigs generating revenue at the applicable end date of the time period.

Operating Revenues Operating revenues were $29.1 million and $29.3 million in the three months ended March 31, 2022 and 2021, respectively.

The 0.4 percent decrease was primarily driven by the mix of rigs working at full rates as compared to being on lower standby or mobilization rates.

Direct Operating Expenses Direct operating expenses decreased to $20.9 million during the three months ended March 31, 2022 as compared to $23.1 million during the three months ended March 31, 2021.

The decrease was primarily driven by a favorable adjustment in self-insurance liabilities related to prior period as well as the factors described above.

Operating Revenues Operating revenues were $32.7 million and $33.4 million in the three months ended June 30, 2022 and 2021, respectively.

The 2.0 percent decrease was primarily driven by the mix of rigs working at full rates as compared to being on lower standby or mobilization rates as well as a $1.1 million decrease in reimbursable expenses.

Direct Operating Expenses Direct operating expenses decreased to $23.9 million during the three months ended June 30, 2022 as compared to $24.1 million during the three months ended June 30, 2021.

The decrease was primarily driven by the factors described above.

International Solutions

Three Months Ended March 31,

Three Months Ended June 30,

(in thousands, except operating statistics) 2022 2021 % Change

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Selling, general and administrative expense 2,129 1,346 58.2

Restructuring charges — 207 (100.0)

Segment operating loss $ (6,550) $ (3,538) 85.1

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See — Non-GAAP Measurements below for a reconciliation of segment operating loss to direct margin.

See — Non-GAAP Measurements below for a reconciliation of segment operating income (loss) to direct margin.

(3) Defined as the number of contractual days we recognized revenue for during the period.

1 unchanged sentence

accordingly, 'average active rigs' represents the average number of rigs generating revenue during the applicable time period.

This metric is calculated by dividing revenue days by total days in the applicable period (i.e.

This metric is calculated by dividing revenue days by total days in the applicable period (e.g.

91 days for the three months ended June 30, 2022 and 2021).

(5) Defined as the number of rigs generating revenue at the applicable end date of the time period.

Operating Revenues Operating revenues increased to $27.4 million during the three months ended March 31, 2022 as compared to $14.8 million during the three months ended March 31, 2021.

Operating Revenues Operating revenues increased to $29.1 million during the three months ended June 30, 2022 as compared to $15.3 million during the three months ended June 30, 2021.

The change was primarily driven by a 47.1 percent increase in activity as well as the mix of rigs working.

For the three months ended March 31, 2022, we reported $0.5 million in early termination revenue associated with term contracts compared to $1.9 million during the same period of fiscal year 2021.

Direct Operating Expenses Direct operating expenses increased to $25.2 million during the three months ended March 31, 2022 as compared to $16.7 million during the three months ended March 31, 2021.

This increase was primarily driven by higher activity levels.

Selling, General and Administrative Expense We recognized a $0.9 million increase in selling, general and administrative costs during the three months ended March 31, 2022 compared to the three months ended March 31, 2021.

Direct Operating Expenses Direct operating expenses increased to $32.4 million during the three months ended June 30, 2022 as compared to $16.7 million during the three months ended June 30, 2021.

This increase was primarily driven by the factors described above.

Selling, General and Administrative Expense We recognized a $0.8 million increase in selling, general and administrative costs during the three months ended June 30, 2022 compared to the three months ended June 30, 2021.

This increase was primarily driven by higher compensation expense due to an increase in sales personnel.

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

Three Months Ended March 31,

Three Months Ended June 30,

(in thousands) 2022 2021 % Change

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Operating Revenues 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.

Intercompany premium revenues recorded by the Captives during the three months ended March 31, 2022 and 2021 amounted to $13.2 million and $8.7 million, respectively, which were eliminated upon consolidation.

Direct Operating Expenses Direct operating costs consisted primarily of $1.8 million and $2.3 million in adjustments to accruals for estimated losses allocated to the Captives and rig casualty insurance premiums of $7.9 million and $5.0 million during the three months ended March 31, 2022 and 2021, respectively.

Intercompany premium revenues recorded by the Captives during the three months ended June 30, 2022 and 2021 amounted to $14.7 million and $9.4 million, respectively, which were eliminated upon consolidation.

Direct Operating Expenses Direct operating costs consisted primarily of $3.1 million and $6.0 million in adjustments to accruals for estimated losses allocated to the Captives and rig casualty insurance premiums of $9.4 million and $5.6 million during the three months ended June 30, 2022 and 2021, respectively.

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

Results of Operations for the Six Months Ended March 31, 2022 and 2021

Results of Operations for the Nine Months Ended June 30, 2022 and 2021

Consolidated Results of Operations

Net Loss We reported a loss from continuing operations of $56.0 million ($0.53 loss per diluted share) on operating revenues of $877.4 million for the six months ended March 31, 2022 compared to a loss from continuing operations of $201.2 million ($1.87 loss per diluted share) on operating revenues of $542.5 million for the six months ended March 31, 2021.

Included in the net loss for the six months ended March 31, 2022 is a loss of $0.3 million (with no impact on a per diluted share basis) from discontinued operations.

Including discontinued operations, we recorded a net loss of $56.3 million ($0.53 loss per diluted share) for the six months ended March 31, 2022 compared to a net loss of $191.4 million ($1.78 loss per diluted share) for the six months ended March 31, 2021.

Selling, General and Administrative Expense Selling, general and administrative expenses increased to $90.8 million during the six months ended March 31, 2022 compared to $78.7 million during the six months ended March 31, 2021.

The $12.1 million increase in fiscal year 2022 compared to the same period in fiscal year 2021 is is primarily due to increases in IT infrastructure spending and professional services fees.

Asset Impairment Charge During the first quarter of fiscal year 2022, we identified two partial rig substructures and two international FlexRig® drilling rigs located in Colombia 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 and recorded in the Unaudited Condensed Consolidated Statement of Operations for the six months ended March 31, 2022, compared to an impairment charge of $54.3 million for the six months ended March 31, 2021.

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 and recorded in the Unaudited Condensed Consolidated Statement of Operations during the six months ended March 31, 2022, 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.

Net Loss We reported a loss from continuing operations of $38.5 million ($0.37 loss per diluted share) on operating revenues of $1.4 billion for the nine months ended June 30, 2022 compared to a loss from continuing operations of $257.9 million ($2.40 loss per diluted share) on operating revenues of $0.9 billion for the nine months ended June 30, 2021.

Included in the net loss for the nine months ended June 30, 2022 is a loss of $0.1 million (with no impact on a per diluted share basis) from discontinued operations.

Including discontinued operations, we recorded a net loss of $38.6 million ($0.37 loss per diluted share) for the nine months ended June 30, 2022 compared to a net loss of $247.0 million ($2.30 loss per diluted share) for the nine months ended June 30, 2021.

Selling, General and Administrative Expense Selling, general and administrative expenses increased to $135.7 million during the nine months ended June 30, 2022 compared to $120.4 million during the nine months ended June 30, 2021.

The $15.3 million increase in fiscal year 2022 compared to the same period in fiscal year 2021 is primarily due to increases in professional services fees, IT infrastructure spending and labor expense.

Asset Impairment Charge During the nine months ended June 30, 2022, we identified various assets 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 was $5.4 million and were written down to their estimated fair value less cost to sell of $1.0 million, resulting in a non-cash impairment charge of $4.4 million, within our North America Solutions and International Solutions segment.

The impairment charge was recorded in the Unaudited Condensed Consolidated Statement of Operations for the nine months ended June 30, 2022.

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 spares, which resulted in an impairment charge of $56.4 million for the nine months ended June 30, 2021.

Gain on Investment Securities During the nine months ended June 30, 2022 we recognized an aggregate gain of $55.7 million on investment securities.

This gain was primarily comprised of a $47.8 million gain on our equity investment in ADNOC Drilling caused by an increase in the fair market value of the stock.

In September 2021, the Company made 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 six months ended March 31, 2022 we recognized a gain of $64.5 million due to an increase in the fair market value of the stock.

Additionally, during the nine months ended June 30, 2022 we recognized a gain of $8.2 million on our equity investment in Schlumberger, Ltd.

Loss on Extinguishment of Debt 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 during the six months ended March 31, 2022.

We used a discrete effective tax rate method to calculate income taxes for the six months ended March 31, 2022 as we determined the historical annualized method would not provide a reliable estimate for the six months ended March 31, 2022.

We anticipate utilizing the discrete effective tax rate method to calculate the provision for income taxes for the remainder of this fiscal year.

For the six months ended March 31, 2022, we had an income tax benefit of $4.9 million compared to an income tax benefit of $54.7 million (which included discrete tax expense of approximately $4.1 million related to equity compensation) for the six months ended March 31, 2021.

Restructuring Charges During the nine months ended June 30, 2022 and 2021, we incurred $0.8 million and $3.9 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.

Income Taxes We had an income tax benefit of $3.2 million for the nine months ended June 30, 2022 (which includes a discrete tax expense of $10.0 million primarily related to an increase in our deferred state income tax rate, return to provision adjustments and equity compensation) compared to an income tax benefit of $78.4 million (which includes a discrete tax benefit of approximately $1.9 million primarily related to a decrease in our deferred state income tax rate and equity compensation) for the nine months ended June 30, 2021.

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

North America Solutions

Six Months Ended March 31,

Nine Months Ended June 30,

(in thousands, except operating statistics) 2022 2021 % Change

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Restructuring charges 498 2,969 (83.2)

Segment operating loss $ (27,596) $ (182,762) (84.9)

Segment operating income (loss) $ 29,757 $ (226,505) (113.1)

Financial Data and Other Operating Statistics 1 :

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See — Non-GAAP Measurements below for a reconciliation of segment operating loss to direct margin.

See — Non-GAAP Measurements below for a reconciliation of segment operating income (loss) to direct margin.

(3) Defined as the number of contractual days we recognized revenue for during the period.

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accordingly, 'average active rigs' represents the average number of rigs generating revenue during the applicable time period.

This metric is calculated by dividing revenue days by total days in the applicable period (i.e.

This metric is calculated by dividing revenue days by total days in the applicable period (e.g.

273 days for the nine months ended June 30, 2022 and 2021).

(5) Defined as the number of rigs generating revenue at the applicable end date of the time period.

Operating Revenues Operating revenues were $749.8 million and $451.9 million during the six months ended March 31, 2022 and 2021, respectively.

The 65.9 percent increase in operating revenue is primarily due to a 63.7 percent increase in activity levels, partially offset by a decrease in early termination revenue.

For the six months ended March 31, 2022, we reported $0.2 million in early termination revenue associated with term contracts compared to $5.8 million during the same period of fiscal year 2021.

Direct Operating Expenses Direct operating expenses increased to $551.0 million during the six months ended March 31, 2022 as compared to $343.2 million during the six months ended March 31, 2021.

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 $189.4 million during the six months ended March 31, 2022 as compared to $200.2 million during the six months ended March 31, 2021.

Operating Revenues Operating revenues were $1.2 billion and $0.7 billion during the nine months ended June 30, 2022 and 2021, respectively.

The 68.6 percent increase in operating revenue is primarily due to a 56.6 percent increase in activity levels and higher pricing levels, partially offset by a decrease in early termination revenue.

For the nine months ended June 30, 2022, we reported $0.2 million in early termination revenue associated with term contracts compared to $5.8 million during the same period of fiscal year 2021.

Direct Operating Expenses Direct operating expenses increased to $869.4 million during the nine months ended June 30, 2022 as compared to $549.3 million during the nine months ended June 30, 2021.

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

Depreciation and Amortization Depreciation and amortization decreased to $283.1 million during the nine months ended June 30, 2022 as compared to $297.2 million during the nine months ended June 30, 2021.

The decrease was primarily attributable to the termination of depreciation on six rigs located in the U.S.

that were included in the ADNOC sale during the fourth quarter of fiscal year 2021 coupled with ongoing relatively low levels of capital expenditures.

Asset Impairment Charge During the first quarter of fiscal year 2022, 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 six months ended March 31, 2022 in the Unaudited Condensed Consolidated Statement of Operations, compared to an impairment charge of $54.3 million for the six months ended March 31, 2021.

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 nine months ended June 30, 2022 in the Unaudited Condensed Consolidated Statement of Operations.

Restructuring Charges During the nine months ended June 30, 2022 and 2021, we incurred $0.5 million and $3.0 million in restructuring charges respectively.

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

Offshore Gulf of Mexico

Six Months Ended March 31,

Nine Months Ended June 30,

(in thousands, except operating statistics) 2022 2021 % Change

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See — Non-GAAP Measurements below for a reconciliation of segment operating income to direct margin.

See — Non-GAAP Measurements below for a reconciliation of segment operating income (loss) to direct margin.

(3) Defined as the number of contractual days we recognized revenue for during the period.

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accordingly, 'average active rigs' represents the average number of rigs generating revenue during the applicable time period.

This metric is calculated by dividing revenue days by total days in the applicable period (i.e.

This metric is calculated by dividing revenue days by total days in the applicable period (e.g.

273 days for the nine months ended June 30, 2022 and 2021).

(5) Defined as the number of rigs generating revenue at the applicable end date of the time period.

Operating Revenues Operating revenues were $58.5 million and $61.5 million in the six months ended March 31, 2022 and 2021, respectively.

The 5.0 percent decrease was primarily driven by the mix of rigs working at full rates as compared to being on lower standby or mobilization rates.

Direct Operating Expenses Direct operating expenses decreased to $41.6 million during the six months ended March 31, 2021 as compared to $49.3 million during the six months ended March 31, 2021.

Operating Revenues Operating revenues were $91.2 million and $94.9 million in the nine months ended June 30, 2022 and 2021, respectively.

The 4.0 percent decrease was primarily driven by lower reimbursable expenses and the mix of rigs working at full rates as compared to being on lower standby or mobilization rates.

Direct Operating Expenses Direct operating expenses decreased to $65.5 million during the nine months ended June 30, 2021 as compared to $73.5 million during the nine months ended June 30, 2021.

The decrease was primarily driven by a favorable adjustment in self-insurance liabilities related to prior period claims as well as the factors described above.

International Solutions

Six Months Ended March 31,

Nine Months Ended June 30,

(in thousands, except operating statistics) 2022 2021 % Change

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Asset impairment charge 2,495 — 100.0

Restructuring charges — 207 (100.0)

Segment operating income (loss) $ 651 $ (15,353) (104.2)

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accordingly, 'average active rigs' represents the average number of rigs generating revenue during the applicable time period.

This metric is calculated by dividing revenue days by total days in the applicable period (i.e.

This metric is calculated by dividing revenue days by total days in the applicable period (e.g.

273 days for the nine months ended June 30, 2022 and 2021).

(5) Defined as the number of rigs generating revenue at the applicable end date of the time period.

Operating Revenues Operating revenues increased to $64.6 million during the six months ended March 31, 2022 as compared to $25.3 million during the six months ended March 31, 2021.

The change was primarily driven by a 73.1 percent increase in activity as well as the settlement of a contractual dispute that was recognized in operating revenues during the six months ended March 31, 2022.

Operating Revenues Operating revenues increased to $93.7 million during the nine months ended June 30, 2022 as compared to $40.6 million during the nine months ended June 30, 2021.

The change was primarily driven by a 63.5 percent increase in activity as well as the settlement of a contractual dispute that was recognized in operating revenues during the nine months ended June 30, 2022.

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

For the six months ended March 31, 2022, we reported $0.5 million in early termination revenue associated with term contracts compared to $1.9 million during the same period of fiscal year 2021.

Direct Operating Expenses Direct operating expenses increased to $49.3 million during the six months ended March 31, 2022 as compared to $34.2 million during the six months ended March 31, 2021.

For the nine months ended June 30, 2022, we reported $0.5 million in early termination revenue associated with term contracts compared to $1.9 million during the same period of fiscal year 2021.

Direct Operating Expenses Direct operating expenses increased to $81.7 million during the nine months ended June 30, 2022 as compared to $50.9 million during the nine months ended June 30, 2021.

This increase was primarily driven by higher activity levels partially offset by fixed cost leverage.

Selling, General and Administrative Expense We recognized a $1.7 million increase in selling, general and administrative costs during the six months ended March 31, 2022 compared to the six months ended March 31, 2021.

Selling, General and Administrative Expense We recognized a $2.4 million increase in selling, general and administrative costs during the nine months ended June 30, 2022 compared to the nine months ended June 30, 2021.

This increase was primarily driven by primarily driven by higher compensation expense due to an increase in sales personnel.

Asset Impairment Charge During the first quarter of fiscal year 2022, 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 six months ended March 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.

In conjunction with establishing a plan to sell these rigs we recognized a non-cash impairment charge of $2.5 million during the nine months ended June 30, 2022 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:

Six Months Ended March 31,

Nine Months Ended June 30,

(in thousands) 2022 2021 % Change

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Selling, general and administrative expense 932 953 (2.2)

Operating income $ 7,096 $ 3,039 133.5

Operating income (loss) $ 9,061 $ (1,631) (655.5)

Intercompany premium revenues recorded by the Captives during the six months ended March 31, 2022 and 2021 amounted to $26.9 million and $15.8 million, respectively, which were eliminated upon consolidation.

Direct Operating Expenses Direct operating costs consisted primarily of $(0.4) million and $2.8 million in adjustments to accruals for estimated losses allocated to the Captives and rig casualty insurance premiums of $16.7 million and $7.5 million during the six months ended March 31, 2022 and 2021, respectively.

Intercompany premium revenues recorded by the Captives during the nine months ended June 30, 2022 and 2021 amounted to $41.6 million and $25.2 million, respectively, which were eliminated upon consolidation.

Direct Operating Expenses Direct operating costs consisted primarily of $2.7 million and $8.8 million in adjustments to accruals for estimated losses allocated to the Captives and rig casualty insurance premiums of $26.2 million and $13.1 million during the nine months ended June 30, 2022 and 2021, respectively.

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

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Treasury securities, U.S.

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

Agency issued debt securities, highly rated 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.

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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 March 31, 2022, we had $202.2 million of cash and cash equivalents on hand and $148.4 million of short-term investments.

Our cash flows for the six months ended March 31, 2022 and 2021 are presented below:

Six Months Ended March 31,

To date, general inflationary trends have not had a material effect on our operating margins or cash flows as we have been able to more than offset these cumulative cost trends with rate increases.

As of June 30, 2022, we had $188.7 million of cash and cash equivalents on hand and $144.3 million of short-term investments.

Our cash flows for the nine months ended June 30, 2022 and 2021 are presented below:

Nine Months Ended June 30,

(in thousands) 2022 2021

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Operating Activities

Our operating net working capital (non-GAAP) as of March 31, 2022 and September 30, 2021 is presented below:

March 31, September 30,

Our operating net working capital (non-GAAP) as of June 30, 2022 and September 30, 2021 is presented below:

June 30, September 30,

(in thousands) 2022 2021

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Operating net working capital (non-GAAP) $ 248,258 $ 129,915

Cash flows provided by operating activities were approximately $18.9 million and $58.8 million for the six months ended March 31, 2022 and 2021, respectively.

The change in cash used in operating activities is primarily driven by changes in working capital.

For the six months ended March 31, 2022, working capital was a use of cash, while during the six months ended March 31, 2021, working capital was a source of cash.

Higher activity levels during the six months ended March 31, 2022, are an offsetting contribution to cash flow from operations.

Cash flows provided by operating activities were approximately $116.6 million and $89.8 million for the nine months ended June 30, 2022 and 2021, respectively.

The change in cash provided by operating activities is primarily driven by higher activity and rates, partially offset by changes in working capital.

For the nine months ended June 30, 2022, working capital was a source of cash.

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 advance payments for sale of property, plant and equipment.

Operating net working capital was $238.4 million as of March 31, 2022 compared to $129.9 million as of September 30, 2021.

Operating net working capital was $248.3 million as of June 30, 2022 compared to $129.9 million as of September 30, 2021.

This metric is considered a non-GAAP measure of the Company's liquidity.

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The sequential increase in operating 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 March 31, 2022 was $24.3 million of income tax receivables, a portion of which we expect to collect before the end of calendar year 2022.

Included in accounts receivable as of June 30, 2022 was $27.9 million of income tax receivables, a portion of which we expect to collect before the end of calendar year 2022.

Investing Activities

Capital Expenditures Our capital expenditures during the six months ended March 31, 2022 were $104.5 million compared to $30.7 million during the six months ended March 31, 2021.

Capital Expenditures Our capital expenditures during the nine months ended June 30, 2022 were $175.0 million compared to $49.2 million during the nine months ended June 30, 2021.

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

Purchase (Sales) of Short-Term Investments Our net sales of short-term investments during the six months ended March 31, 2022 were $(48.9) million compared to net purchases of $41.9 million during the six months ended March 31, 2021.

Purchase (Sales) of Short-Term Investments Our net sales of short-term investments during the nine months ended June 30, 2022 were $(52.4) million compared to net purchases of $95.0 million during the nine months ended June 30, 2021.

The change is driven by our ongoing liquidity management.

Purchase of Long-Term Investments Our purchases of long-term investments during the six months ended March 31, 2022 were $14.1 million compared to $1.1 million during the six months ended March 31, 2021.

The increase is driven by purchases of geothermal investments made during the six months ended March 31, 2021.

Sale of Assets Our proceeds from asset sales during the six months ended March 31, 2022 were $34.9 million compared to proceeds of $13.4 million during the six months ended March 31, 2021.

Purchase of Long-Term Investments Our net purchases of long-term investments during the nine months ended June 30, 2022 were $25.2 million compared to $2.3 million during the nine months ended June 30, 2021.

The increase is driven by our $33.0 million cornerstone investment in a convertible note in Galileo Holdco 2, in addition to purchases of geothermal investments, offset by the $22.0 million of proceeds received from the liquidation of our remaining equity securities in Schlumberger, Ltd.

during the nine months ended June 30, 2022.

Sale of Assets Our proceeds from asset sales during the nine months ended June 30, 2022 were $50.3 million compared to proceeds of $26.8 million during the nine months ended June 30, 2021.

The increase in proceeds is mainly driven by higher rig activity which drives higher reimbursement from customers for lost or damaged drill pipe.

The increase is also attributable to the sale of our casing running and trucking assets that occurred during the six months ended March 31, 2022.

The increase is also attributable to the sale of our casing running and trucking assets that occurred during the nine months ended June 30, 2022.

Financing Activities

Dividends We paid dividends of $0.50 per share during the six months ended March 31, 2022 and 2021.

Total dividends paid were $54.0 million and $54.2 million during the six months ended March 31, 2022 and 2021, respectively.

A cash dividend of $0.25 per share was declared on March 2, 2022 for shareholders of record on May 13, 2022, payable on May 27, 2022.

Dividends We paid dividends of $0.75 per share during both the nine months ended June 30, 2022 and 2021.

Total dividends paid were $80.7 million and $81.8 million during the nine months ended June 30, 2022 and 2021, respectively.

A cash dividend of $0.25 per share was declared on May 31, 2022 for shareholders of record on August 17, 2022, payable on September 1, 2022.

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.

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

During the six months ended March 31, 2021, we repurchased 3.2 million common shares at an aggregate cost of $77.0 million, which are held as treasury shares.

During the nine months ended June 30, 2022, we repurchased 3.2 million common shares at an aggregate cost of $77.0 million, which are held as treasury shares.

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

Credit Facilities

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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 March 31, 2022, there were no borrowings or letters of credit outstanding, leaving $750.0 million available to borrow under the 2018 Credit Facility.

As of June 30, 2022, 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 March 31, 2022, we had four separate bi-lateral credit facilities with banks with an aggregate outstanding balance of $33.8 million.

As of March 31, 2022, 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 March 31, 2022.

As of June 30, 2022, we had four separate bi-lateral credit facilities with banks with an aggregate outstanding balance of $33.8 million.

As of June 30, 2022, 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 June 30, 2022.

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 March 31, 2022, 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.

At June 30, 2022, 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.

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

Future Cash Requirements

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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 March 31, 2022 and matures on September 29, 2031.

During April 2022, the Company made a $33.0 million cornerstone investment in an affiliate of Galileo in the form of a convertible note.

Refer to Note 15—Subsequent Events for further details.

As of March 31, 2022, we had a $552.3 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 indebtedness under our unsecured senior notes totaled $550.0 million at June 30, 2022 and matures on September 29, 2031.

As of June 30, 2022, we had a $527.5 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.

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

At March 31, 2022, we had $4.9 million recorded for uncertain tax positions and related interest and penalties.

At June 30, 2022, 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 16.7 percent and 15.9 percent at March 31, 2022 and September 30, 2021, respectively.

The long-term debt to total capitalization ratio was 16.8 percent and 15.9 percent at June 30, 2022 and September 30, 2021, respectively.

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

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Material Commitments

Material commitments as reported in our 2021 Annual Report on Form 10-K have not changed significantly at March 31, 2022, other than those disclosed in Note 6—Debt and 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 June 30, 2022, 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

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The following table reconciles direct margin to segment operating income (loss), which we believe is the financial measure calculated and presented in accordance with GAAP that is most directly comparable to direct margin.

Three Months Ended March 31, 2022

Three Months Ended June 30, 2022

(in thousands) North America Solutions Offshore Gulf of Mexico International Solutions

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Selling, general and administrative expense 10,069 579 2,129

Restructuring charges 25 — —

Direct margin (Non-GAAP) $ 167,604 $ 8,779 $ (3,246)

Three Months Ended March 31, 2021

Three Months Ended June 30, 2021

(in thousands) North America Solutions Offshore Gulf of Mexico International Solutions

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Direct margin (Non-GAAP) $ 74,960 $ 9,237 $ (1,412)

Six Months Ended March 31, 2022

Nine Months Ended June 30, 2022

(in thousands) North America Solutions Offshore Gulf of Mexico International Solutions

Segment operating income (loss) $ (27,596) $ 10,744 $ 7,201

Segment operating income $ 29,757 $ 16,616 $ 651

Depreciation and amortization 283,050 7,109 2,979

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Direct margin (Non-GAAP) $ 366,487 $ 25,645 $ 12,033

Six Months Ended March 31, 2021

Nine Months Ended June 30, 2021

(in thousands) North America Solutions Offshore Gulf of Mexico International Solutions

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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