3 unchanged sentences
Our actual results may differ materially from those anticipated in these forward-looking statements as a result of a variety of risks and uncertainties, including those described in this Form 10-K under “Cautionary Note regarding Forward-Looking Statements” and Item 1A— “Risk Factors.” Accordingly, past results and trends should not be used by investors to anticipate future results or trends.
−Removed: 2021 FORM 10-K | 38
Executive Summary
3 unchanged sentences
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 September 30, 2022.
−Removed: At the close of fiscal year 2021, we had 137 contracted rigs, of which 73 were under a fixed-term contract and 64 were working well-to-well, compared to 79 contracted rigs at September 30, 2020.
+Added: At the close of fiscal year 2022, we had 192 active contracted rigs, of which 125 were under a fixed-term contract and 67 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.
−Removed: As we move forward, we believe that our advanced uniform rig fleet, technology offerings, financial strength, contract backlog and strong customer and employee base position us very well to respond to continued cyclical and often times volatile market conditions and take advantage of future opportunities.
+Added: As we move forward, we believe that our advanced uniform rig fleet, technology offerings, financial strength, contract backlog and strong customer and employee base position us very well to respond to continued cyclical and often times volatile market conditions and to take advantage of future opportunities.
+Added: 2022 FORM 10-K | 37
Market Outlook
−Removed: 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”).
+Added: 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 various supply and demand factors.
Both commodities have historically been, and we expect them to continue to be, cyclical and highly volatile.
+Added: Our drilling services operations are organized into the following reportable operating segments:
+Added: 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.
land drilling industry.
−Removed: 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.
−Removed: During this time, we designed, built and delivered to the market new technology AC drive rigs (FlexRig®), substantially growing our fleet.
−Removed: 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.
−Removed: Throughout this time, the length of the lateral section of wells drilled in the United States has continued to grow.
−Removed: 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.
−Removed: The upgraded rigs meeting those specifications are commonly referred to in the industry as super-spec rigs and have the following specific characteristics:
+Added: 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.
−Removed: 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.
+Added: 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.
−Removed: 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.
−Removed: As such, we believe we are well positioned to respond to various market conditions.
−Removed: 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.
−Removed: 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.
−Removed: 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.
−Removed: 2021 FORM 10-K | 39
−Removed: 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 2020.
−Removed: 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.
−Removed: More recently, crude oil prices have continued to increase, reaching more than $70 per barrel.
−Removed: 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.
−Removed: This is primarily due to a large portion of our customers having a more disciplined approach to their operations and capital spending.
−Removed: 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.
−Removed: 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.
−Removed: Our North America Solutions active rig count has more than doubled from 47 rigs in August 2020 to 127 rigs at September 30, 2021.
−Removed: We do anticipate further increases in our rig count for the remainder of calendar year 2021 as customers prepare for 2022 operations based upon the expectation that the level of capital spending will be higher in calendar year 2022 than it was in calendar year 2021.
−Removed: Utilization for our super-spec FlexRig ® fleet peaked in late calendar year 2018 with 216 of 221 super-spec rigs working (98 percent utilization);
−Removed: however, the subsequent decline in the demand for land rigs resulted in customers idling a large portion of our super-spec FlexRig ® fleet.
−Removed: At September 30, 2021, we had 105 idle super-spec rigs out of our FlexRig ® fleet of 230 super-spec rigs (54 percent utilization).
+Added: 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.
+Added: 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.
+Added: 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.
+Added: 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.
+Added: The capital budgets for calendar year 2023 have not yet been established by many of our customers;
+Added: however, based upon the crude oil and natural gas pricing environment and many of our customers' desire to at least maintain their current production levels, we expect the level of capital spending and activity in calendar year 2023 to be similar to modestly higher than that experienced in calendar year 2022.
+Added: In recent years the U.S.
+Added: demand for super-spec rigs has strengthened.
+Added: Despite this increased demand for super-spec rigs there is still idle super-spec rig capacity in the market;
+Added: however, much of that idle capacity represents rigs that have not been active during the preceding two years and in some cases even longer.
+Added: Consequently, there have been additional costs incurred to bring those long-idled rigs back into working condition, which contributed to upward pricing for super-spec rigs.
+Added: 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.
+Added: Our North America Solutions active rig count has more than tripled from COVID pandemic lows of 47 rigs in August 2020 to 176 rigs at September 30, 2022.
+Added: Given the current market dynamics, our disciplined approach to deploying capital, and our fiscal year 2023 capital budget of $425 to $475 million, we project that our active rig count could reach 192 rigs during the first half of calendar 2023.
+Added: 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.
+Added: 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.
+Added: As the largest provider of super-spec rigs in the U.S., H&P is not immune from supply-chain challenges or potential labor constraints, or inflationary pressures that can arise as a result of these matters.
+Added: However, we believe we are well positioned to address these challenges and do not believe they are a limiting factor relative to our activity plans for fiscal 2023 nor believe they will have a significant adverse impact on our financial results.
+Added: As a result of increased customer demand and limited supply additions given high required rig reactivation expenditures and supply chain constraints, 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.
−Removed: 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.
−Removed: H&P recognizes the uncertainties and concerns caused by the COVID-19 pandemic;
−Removed: 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.
−Removed: 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.
−Removed: 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.
−Removed: 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.
−Removed: The health and safety of all H&P stakeholders - our employees, customers, and vendors - remain a top priority at the Company.
−Removed: 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.
−Removed: We are adhering to Center for Disease Control guidelines for evaluating actual and potential COVID-19 exposures and we are complying with local governmental jurisdiction policies and procedures where our operations reside;
−Removed: 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.
−Removed: 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.
−Removed: 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.
−Removed: We believe our service levels are unchanged from pre-pandemic levels.
−Removed: 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.
−Removed: We have taken measures to reduce costs and capital expenditures to levels that better reflect a lower activity environment.
−Removed: The actions we took during fiscal year 2020 included a reduction to the annual dividend of approximately $200 million, a reduction of approximately $145 million in the fiscal year 2020 capital spend, a reduction of over $50 million in fixed operational overhead, and a reduction of selling, general and administrative expenses of more than $25 million on an annualized basis.
−Removed: The culmination of these cost-saving initiatives resulted in a $16 million restructuring charge during fiscal year 2020.
−Removed: Further, we took additional steps in fiscal year 2021 to reduce our cost structure.
−Removed: 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.
−Removed: We anticipate further cost reductions going forward;
−Removed: however, implementation of future cost initiatives will be incremental and are anticipated to be realized over the next few quarters.
−Removed: These cost reduction measures could lead to additional restructuring charges in future periods.
+Added: 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.
+Added: 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.
2022 FORM 10-K | 38
−Removed: At September 30, 2021, the Company had cash and cash equivalents and short-term investments of $1.1 billion and availability under the 2018 Credit Facility (as defined herein) of $750 million.
−Removed: On September 27, 2021, the Company delivered a conditional notice of optional full redemption for all of the outstanding 4.65% 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.
−Removed: On September 29, 2021, we issued $550.0 million aggregate principal amount of our 2.90% unsecured senior notes due 2031 (the "2031 Notes").
−Removed: 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.
−Removed: The proceeds from the offering of the 2031 Notes were used to redeem the 2025 Notes.
−Removed: On October 27, 2021, we redeemed all of the outstanding 2025 Notes.
−Removed: The associated make-whole premium and accrued interest of $58.1 million and the write off of the unamortized discount and debt issuance costs of $3.7 million will be recognized during the first fiscal quarter of 2022 contemporaneously with the October 27, 2021 redemption.
−Removed: Subsequent to the redemption, our near-term liquidity was approximately $1.3 billion .
−Removed: We currently do not anticipate the need to draw on the 2018 Credit Facility.
−Removed: See “—Liquidity and Capital Resources—Senior Notes—2.90% Senior Notes due 2031” below and Note 7—Debt to our Consolidated Financial Statements for more information.
−Removed: 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.
−Removed: 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.
−Removed: At September 30, 2021 and September 30, 2020, the Company had a net allowance against its accounts receivable of $2.1 million and $1.8 million, respectively.
−Removed: 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.
−Removed: 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.
Recent Developments
−Removed: Treasury and Investments
−Removed: Senior Notes Offering and Redemption of 4.65% Senior Notes due 2025
−Removed: On September 29, 2021, we completed our offering of $550.0 million aggregate principal amount of the 2031 Notes.
−Removed: We received net proceeds from the offering of the 2031 Notes of approximately $545.1 million, after deducting the initial purchasers’ discounts and commissions and offering expenses.
−Removed: In October 2021, the net proceeds from the offering were principally used to redeem all $487.1 million aggregate principal amount of our outstanding 2025 Notes.
−Removed: See “—Liquidity and Capital Resources—Senior Notes—2.90% Senior Notes due 2031” below and Note 7—Debt to our Consolidated Financial Statements for more information.
−Removed: On September 27, 2021, the Company delivered a conditional notice of optional full redemption for all of the outstanding 4.65% 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.
−Removed: On September 29, 2021, we issued $550.0 million aggregate principal amount of our 2.90% unsecured senior notes due 2031 (the "2031 Notes").
−Removed: 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.
−Removed: The proceeds from the offering of the 2031 Notes were used to redeem the 2025 Notes.
−Removed: On October 27, 2021, we redeemed all of the outstanding 2025 Notes.
−Removed: The associated make-whole premium and accrued interest of $58.1 million and the write off of the unamortized discount and debt issuance costs of $3.7 million will be recognized during the first fiscal quarter of 2022 contemporaneously with the October 27, 2021 redemption.
−Removed: See “—Liquidity and Capital Resources—Senior Notes—4.65% Senior Notes due 2025” below and Note 7—Debt to our Consolidated Financial Statements for more information.
−Removed: Credit Facility Maturity Extension
−Removed: 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.
−Removed: No other terms of the 2018 Credit Facility were amended in connection with this extension.
−Removed: 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.
−Removed: 2021 FORM 10-K | 41
−Removed: ADNOC and Helmerich & Payne Strategic Alliance
−Removed: During September 2021, the Abu Dhabi National Oil Company ("ADNOC") and its subsidiary ADNOC Drilling Company P.J.S.C ("ADNOC Drilling") and the Company jointly announced a strategic alliance, through which ADNOC Drilling acquired eight of our FlexRig ® land rigs for $86.5 million.
−Removed: Following this transaction, H&P made a $100.0 million cornerstone investment in ADNOC Drilling's initial public offering subject to a three-year lock up period.
−Removed: Our investment is classified within Investments in our Consolidated Balance Sheets as of September 30, 2021.
−Removed: ADNOC Drilling’s IPO completed on October 3, 2021 and our $100.0 million investment represents 159.7 million shares of ADNOC Drilling, equivalent to a one percent ownership stake.
−Removed: We will account for our investment in ADNOC Drilling prospectively, after the IPO date of October 3, 2021, as a marketable equity security with a readily determinable fair value.
−Removed: Fair value will be measured using a market approach on a recurring basis and is categorized using the fair value hierarchy.
−Removed: Any changes in such values will be reflected in net income.
−Removed: The availability of inputs observable in the market depends on a variety of factors, including the type of instrument, whether the instrument is actively traded and other characteristics particular to the transaction, which includes the effect of the lock-up period.
−Removed: This alliance is intended to further drive ADNOC Drilling's growth and expansion as well as enhance their rig-based operational performance by providing them access to our world-class FlexRig ® fleet and leveraging our expertise and technologies.
−Removed: Additionally, this alliance facilitates our goal of allocating capital international, particularly in the Middle East and North Africa region, by accelerating our access to the attractive and fast-growing Abu Dhabi market as a key platform for further regional expansion.
−Removed: The eight rigs had an aggregate net book value of $55.6 million and were recorded as assets held-for-sale in our Consolidated Balance Sheets as of September 30, 2021.
−Removed: The rigs' fair value less estimated cost to sell of $29.0 million, including approximately $24.0 million of cash costs to be incurred, approximated their net book values at September 30, 2021.
−Removed: Two of the eight rigs were already located in the U.A.E where ADNOC Drilling is domiciled with the remaining six rigs to be shipped from the United States.
−Removed: As part of the sales agreement, the rigs will be delivered and commissioned in stages over a twelve-month period subject to acceptance upon successful completion of final inspection on customary terms and conditions.
−Removed: No rigs have been delivered to ADNOC Drilling as of September 30, 2021.
−Removed: Property, Plant and Equipment
−Removed: Sale of Offshore Rig
−Removed: 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 Consolidated Statements of Operations during the fiscal year ended September 30, 2021.
−Removed: Assets Held-for-Sale
−Removed: 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.
−Removed: 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.
−Removed: The book values of those assets were written down to $13.5 million, which represents the fair value less estimated cost to sell, and were reclassified as held-for-sale in the second and third quarter of fiscal year 2021.
−Removed: As a result, we recognized a non-cash impairment charge of $56.4 million, during the fiscal year ended September 30, 2021, in the Consolidated Statement of Operations.
−Removed: During the year ended September 30, 2021, we completed the sale of a portion of the assets with a net book value of $6.5 million that were originally classified as held-for-sale during the second and third quarter of fiscal year 2021.
−Removed: During the fiscal year ended September 30, 2021, we formalized a plan to sell assets related to two of our lower margin service offerings, trucking and casing running services, which contributed approximately 2.8 percent to our consolidated revenue during fiscal year 2021, all within our North America Solutions segment.
−Removed: The combined net book values of these assets of $23.2 million were written down to their combined fair value less estimated cost to sell of $8.8 million, and were reclassified as held-for-sale in the Consolidated Balance Sheets as of September 30, 2021.
−Removed: As a result, we recognized a non-cash impairment charge of $14.4 million in the Consolidated Statement of Operations during the year ended September 30, 2021.
−Removed: Subsequent to September 30, 2021, we closed on the sale of these assets in two separate transactions.
−Removed: The sale of our trucking services was completed on November 3, 2021 while the sale of our casing running services was completed on November 15, 2021 for combined cash consideration less costs to sell of $5.8 million in addition to the possibility of future earnout revenue.
+Added: Investment in Tamboran
+Added: In October 2022, we purchased a $14.1 million equity investment, representing approximately 106 million shares, in Tamboran Resources Limited ("Tamboran").
+Added: Tamboran's shares are listed and publicly traded on the Australian Securities Exchange.
+Added: Additionally, during September 2022, we entered into a fixed-term drilling services agreement with Tamboran.
+Added: The expected $30.3 million of revenue to be earned over the term of the contract is included within our contract backlog as of September 30, 2022, as mobilization is expected to commence in fiscal year 2023.
+Added: Investments in Geothermal Energy
+Added: During the fiscal year ended September 30, 2022, we purchased an additional $18.2 million in geothermal energy investments consisting of both debt and equity securities.
+Added: Investments were made in five separate companies that are pursuing technological concepts to make unconventional geothermal energy a viable economic renewable energy source.
+Added: These companies are developing enhanced geothermal system ("EGS") and closed loop concepts.
+Added: The EGS concepts use one or more of the following:
+Added: horizontal drilling, induced permeability, and fiber optic sensing.
+Added: The closed loop concepts use multilateral wellbores, proprietary working fluid, or coaxial pipe configurations.
+Added: All of these concepts are designed to harvest geothermal heat to create carbon-free, 24/7 geothermal energy.
+Added: The aggregate balance of our investments in geothermal energy companies was $23.7 million and $2.7 million at September 30, 2022 and 2021, respectively .
+Added: At this time, we expect the quantity and pace of our geothermal investments to be reduced relative to fiscal year 2022.
+Added: Investment in ADNOC Drilling
+Added: 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.
+Added: ADNOC Drilling’s IPO was completed on October 3, 2021, and its shares are listed and traded on the Abu Dhabi Securities Exchange.
+Added: Our investment is classified as a long-term equity investment within Investments in our Consolidated Balance Sheets.
+Added: During the fiscal year ended September 30, 2022, we recognized a gain of $47.4 million on our Consolidated Statements of Operations, as a result of the change in fair value of the investment during the period.
+Added: As of September 30, 2022, this investment is classified as a Level 1 investment based on the quoted stock price on the Abu Dhabi Securities Exchange.
+Added: During the fiscal year ended September 30, 2022, we also received dividends in the amount of $6.6 million as a result of this investment.
+Added: Investment in Galileo Technologies
+Added: During the fiscal year ended September 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.
+Added: 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.
+Added: The convertible note bears interest at 5% 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).
+Added: If the conversion option is exercised, the note would convert into common shares of the parent of Galileo Holdco 2 ("Galileo Parent").
+Added: We do not intend to sell this investment prior to its maturity date or an exit event.
+Added: Two of our Directors are independent directors of Galileo Parent.
+Added: Neither Director has a direct or indirect material interest in the transaction.
+Added: Pension Plan Lump-sum Distribution
+Added: 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.
+Added: During the period beginning on May 2, 2022 and ending on June 30, 2022, these participants could elect the limited lump sum distribution.
+Added: This one-time lump sum was subsequently paid in August 2022 and resulted in a pension settlement charge of $7.8 million during the year ended September 30, 2022.
2022 FORM 10-K | 39
−Removed: Restructuring
−Removed: During the second quarter of fiscal year 2021, we reorganized our IT operations and moved select IT functions to a managed service provider.
−Removed: Costs incurred as of September 30, 2021 in connection with the restructuring are primarily comprised of one-time severance benefits to employees who were involuntarily terminated.
−Removed: The termination date of some of the employees extend beyond September 30, 2021, and such employees are required to render service through their respective termination date in order to receive the one-time severance benefit.
−Removed: 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.
−Removed: Total costs incurred related to our IT reorganization and our Argentina separation program were $1.5 million for the fiscal year ended September 30, 2021.
−Removed: Additionally, we continue to take measures to lower our cost structure based on activity levels.
−Removed: During fiscal year 2021, we incurred $4.5 million in one-time moving related expenses primarily due to the downsizing and relocation of our Houston assembly facility and various storage yards used for idle rigs.
−Removed: 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.
Contract Backlog
4 unchanged sentences
In the event of an early termination payment, the timing of the recognition of backlog and the total amount of revenue may differ;
−Removed: however, the overall associated cash flow is preserved.
+Added: however, the overall associated gross margin is preserved.
As such, management finds backlog a useful metric for future planning and budgeting, whereas investors consider it useful in estimating future revenue and cash flows of the Company.
−Removed: As of September 30, 2021 and 2020, our contract drilling backlog was $572.0 million and $658.0 million, respectively.
−Removed: These amounts do not include any anticipated contract renewals or expected performance bonuses.
−Removed: The decrease in backlog at September 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.
+Added: As of September 30, 2022 and 2021, our contract drilling backlog was $1.2 billion and $0.6 billion, respectively.
+Added: The increase in backlog at September 30, 2022 from September 30, 2021 is primarily due to an increase in the number of fixed term drilling contracts executed.
Approximately 30.8 percent of the September 30, 2022 total backlog is reasonably expected to be fulfilled in fiscal year 2024 and thereafter.
−Removed: 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.
−Removed: 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.
−Removed: Such renegotiations included requests to lower the contract dayrate in exchange for additional terms, temporary stacking of the rig, and other proposals.
−Removed: We recognized $7.7 million and $73.4 million in early termination revenue associated with term contracts for the fiscal years ended September 30, 2021 and 2020, respectively.
The following table sets forth the total backlog by reportable segment as of September 30, 2022 and 2021, and the percentage of the September 30, 2022 backlog reasonably expected to be fulfilled in fiscal year 2024 and thereafter:
9 unchanged sentences
Early terminations could cause the actual amount of revenue earned to vary from the backlog reported.
−Removed: See Item 1A—"Risk Factors— Our current backlog of drilling services and solutions revenue may continue to decline and may not be ultimately realized as fixed‑term contracts and may, in certain instances, be terminated without an early termination payment ” within this Form 10-K regarding fixed term contract risk.
−Removed: Additionally, see Item 1A—"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 this Form 10-K.
−Removed: 2021 FORM 10-K | 43
+Added: See Item 1A—"Risk Factors— Our current backlog of drilling services and solutions revenue may decline and may not be ultimately realized as fixed‑term contracts and may, in certain instances, be terminated without an early termination payment ” within this Form 10-K regarding fixed term contract risk.
+Added: Additionally, see Item 1A—"Risk Factors— The impact and effects of public health crises, pandemics and epidemics, such as the COVID-19 pandemic, could have a material adverse effect on our business, financial condition and results of operations" within this Form 10-K.
Results of Operations for the Fiscal Years Ended September 30, 2022 and 2021
Consolidated Results of Operations
−Removed: All per share amounts included in the Results of Operations discussion are stated on a diluted basis.
−Removed: Except as specifically discussed, the following results of operations pertain only to our continuing operations.
−Removed: Net Loss We reported a loss from continuing operations of $337.5 million ($3.14 loss per diluted share) from operating revenues of $1.2 billion for the fiscal year ended September 30, 2021 compared to a loss from continuing operations of $496.4 million ($4.62 loss per diluted share) from operating revenues of $1.8 billion for the fiscal year ended September 30, 2020.
−Removed: Included in the net loss for the fiscal year ended September 30, 2021 is income of $11.3 million ($0.10 per diluted share) from discontinued operations.
−Removed: Including discontinued operations, we recorded a net loss of $326.2 million ($3.04 loss per diluted share) for the fiscal year ended September 30, 2021 compared to a net loss of $494.5 million ($4.60 loss per diluted share) for the fiscal year ended September 30, 2020.
−Removed: Revenue Consolidated operating revenues were $1.2 billion in fiscal year 2021 and $1.8 billion in fiscal year 2020, including early termination revenue of $7.7 million and $73.4 million in each respective fiscal year.
−Removed: Excluding early termination revenue, operating revenue decreased $0.5 billion in fiscal year 2021 compared to fiscal year 2020.
−Removed: The decrease in fiscal year 2021 from fiscal year 2020 was driven by lower activity, lower early termination revenue, and lower average rig pricing.
+Added: Net Income (Loss) We reported income from continuing operations of $6.6 million ($0.05 per diluted share) from operating revenues of $2.1 billion for the fiscal year ended September 30, 2022 compared to a loss from continuing operations of $337.5 million ($3.14 loss per diluted share) from operating revenues of $1.2 billion for the fiscal year ended September 30, 2021.
+Added: Included in net income for the fiscal year ended September 30, 2022 is income of $0.4 million (with no impact on a per diluted share basis) from discontinued operations.
+Added: Including discontinued operations, we recorded net income of $7.0 million ($0.05 per diluted share) for the fiscal year ended September 30, 2022 compared to a net loss of $326.2 million ($3.04 loss per diluted share) for the fiscal year ended September 30, 2021.
+Added: Operating Revenue Consolidated operating revenues were $2.1 billion in fiscal year 2022 and $1.2 billion in fiscal year 2021, including early termination revenue of $0.7 million and $7.7 million in each respective fiscal year.
+Added: Excluding early termination revenue, operating revenue increased $0.8 billion in fiscal year 2022 compared to fiscal year 2021.
+Added: The increase in fiscal year 2022 from fiscal year 2021 was primarily driven by an increase in average rig pricing and activity levels in our North America Solutions segment and increased activity levels in our International Solutions segment.
+Added: Refer to segment results below for further details.
Direct Operating Expenses, Excluding Depreciation and Amortization Direct operating expenses in fiscal year 2022 were $1.4 billion, compared with $1.0 billion in fiscal year 2021.
−Removed: The decrease in fiscal year 2021 from fiscal year 2020 was primarily attributable to the previously mentioned lower activity levels, partially offset by fixed overhead costs and higher rig recommissioning expenses, as we reactivated rigs across fiscal year 2021.
+Added: The increase in fiscal year 2022 from fiscal year 2021 was primarily attributable to the previously mentioned higher activity levels.
+Added: 2022 FORM 10-K | 40
Depreciation and Amortization Depreciation and amortization expense was $403.2 million in fiscal year 2022 and $419.7 million in fiscal year 2021.
−Removed: The decrease in depreciation and amortization during fiscal year ended September 30, 2021 compared to fiscal year ended September 30, 2020 was primarily attributable to the lower carrying cost of our impaired assets as well as ongoing low levels of capital expenditures.
+Added: The decrease in depreciation and amortization during the fiscal year ended September 30, 2022 compared to the fiscal year ended September 30, 2021 was primarily attributable to the termination of depreciation on eight rigs that were included in the ADNOC sale during the fourth quarter of fiscal year 2021 coupled with ongoing relatively low levels of capital expenditures.
Depreciation and amortization includes amortization of intangible assets of $7.2 million in fiscal years 2022 and 2021, and abandonments of equipment of $6.6 million and $2.0 million in fiscal years 2022 and 2021, respectively.
−Removed: Research and Development For the fiscal years ended September 30, 2021 and 2020, we incurred $21.7 million and $21.6 million, respectively, of research and development expenses.
Selling, General and Administrative Expense Selling, general and administrative expenses increased to $182.4 million in the fiscal year ended September 30, 2022 compared to $172.2 million in the fiscal year ended September 30, 2021.
−Removed: The $4.7 million increase in fiscal year 2021 compared to fiscal year 2020 is primarily due to higher accrued variable compensation expense and professional service fees.
−Removed: Asset Impairment During the fiscal year ended September 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.
−Removed: This resulted in an impairment charge of $56.4 million ($43.3 million, net of tax, or $0.40 per diluted share.
−Removed: During the fiscal year ended September 30, 2021, we formalized a plan to sell assets related to two of our lower margin service offerings, trucking and casing running services, all within our North America Solutions segment.
−Removed: The combined book values of these assets were written down to $8.8 million, which represents their combined fair value less cost to sell, and were reclassified as held-for-sale in the Consolidated Balance Sheets as of September 30, 2021.
−Removed: As a result, we recognized a non-cash impairment charge of $14.4 million ($10.9 million, net of tax, or $0.10 per diluted share).
−Removed: Comparatively, during the fiscal year ended September 30, 2020, we recorded an asset impairment charge of $563.2 million ($437.5 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.
+Added: The $10.2 million increase in fiscal year 2022 compared to fiscal year 2021 is primarily due to a $6.0 million increase in IT infrastructure spending, and a $5.6 million increase in labor and travel expense.
+Added: Asset Impairment Charges During the fiscal year ended September 30, 2022, we identified various assets that met the asset held-for-sale criteria and were reclassified as assets held-for-sale on our Consolidated Balance Sheets.
+Added: 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 segments.
+Added: The impairment charge was recorded in the Consolidated Statement of Operations for the fiscal year ended September 30, 2022.
+Added: Comparatively, during the fiscal year ended September 30, 2021, the Company developed 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, which resulted in an impairment charge of $56.4 million.
+Added: Also, during the fiscal year ended September 30, 2021, we formalized a plan to sell assets related to two of our lower margin service offerings, trucking and casing running services, all within our North America Solutions segment, which resulted in a non-cash impairment charge of $14.4 million.
+Added: Gain on Investment Securities During the fiscal year ended September 30, 2022, we recognized an aggregate gain of $57.9 million on investment securities.
+Added: This gain was primarily comprised of a $47.4 million gain on our equity investment in ADNOC Drilling caused by an increase in the fair market value of the stock.
+Added: 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.
+Added: This investment is subject to a three-year lock-up period.
+Added: Additionally, during the fiscal year ended September 30, 2022, we sold our remaining equity securities of approximately 467.5 thousand shares in Schlumberger, Ltd.
+Added: and received proceeds of approximately $22.0 million.
+Added: We recognized an aggregate gain of $8.2 million related to this investment, which included a $0.5 million gain recognized upon the sale and a $7.7 million gain as a result of the change in the fair value of the investment during the fiscal year ended September 30, 2022.
Restructuring Charges During the fiscal years ended September 30, 2022 and 2021, we incurred $0.8 million and $5.9 million, respectively, in restructuring charges.
The charges incurred during the fiscal year ended September 30, 2021 included $1.5 million in one-time severance benefits paid to employees who were voluntarily or involuntarily terminated primarily as a result of the reorganization of our IT operations coupled with charges of $4.5 million primarily related to the relocation of our Houston assembly facility and the downsizing of our storage yards used for idle rigs.
−Removed: The charges incurred during the fiscal year ended September 30, 2020 were primarily comprised of $19.5 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.
−Removed: 2021 FORM 10-K | 44
Interest and Dividend Income Interest and dividend income was $18.1 million and $10.3 million in fiscal years 2022 and 2021, respectively.
−Removed: The increase in interest and dividend income in fiscal year 2021 was primarily due to $3.2 million of interest income received from the U.S.
−Removed: Department of the Treasury related to a tax refund, partially offset by lower interest rates.
+Added: The increase in interest and dividend income in fiscal year 2022 was primarily due to $6.6 million of dividend income received as a result of our investment in ADNOC drilling.
Interest Expense Interest expense totaled $19.2 million in fiscal year 2022 and $24.0 million in fiscal year 2021.
−Removed: Interest expense is primarily attributable to fixed ‑ rate debt outstanding.
−Removed: Income Taxes We had an income tax benefit of $103.7 million in fiscal year 2021 compared to an income tax benefit of $140.1 million in fiscal year 2020.
+Added: The decrease in interest expense is primarily attributable to a lower interest rate on our 2.90% Senior Notes due 2031 (issued in September 2021) as compared to our 4.65% Senior Notes due 2025, which was fully redeemed in October 2021.
+Added: Income Taxes We had an income tax expense of $24.4 million in fiscal year 2022 compared to an income tax benefit of $103.7 million in fiscal year 2021.
The effective income tax rate was 78.8 percent in fiscal year 2022 compared to 23.5 percent in fiscal year 2021.
The effective rates differ from the U.S.
−Removed: federal statutory rate (21.0 percent for fiscal years 2021 and 2020) due to non-deductible permanent items, state and foreign income taxes, and adjustments to the deferred state income tax rate.
+Added: federal statutory rate (21.0 percent for the fiscal years 2022 and 2021) primarily due to non-deductible permanent items, the foreign derived intangible income deduction (in fiscal year 2022), state and foreign income taxes, and adjustments to the deferred state income tax rate.
+Added: Additionally, the effective income tax rate is higher in fiscal year 2022 as the low level of net income before tax increases the impact of the rate differences.
Deferred income taxes are provided for temporary differences between the financial reporting basis and the tax basis of our assets and liabilities.
3 unchanged sentences
See Note 8—Income Taxes to our Consolidated Financial Statements for additional income tax disclosures.
−Removed: Discontinued Operations Expenses incurred within the country of Venezuela are reported as discontinued operations.
+Added: 2022 FORM 10-K | 41
+Added: Discontinued Operations Income from discontinued operations was $0.4 million and $11.3 million in fiscal years 2022 and 2021, respectively.
+Added: Expenses incurred within the country of Venezuela are reported as discontinued operations.
Our wholly-owned subsidiaries, Helmerich & Payne International Drilling Co.
1 unchanged sentence
and PDVSA Petroleo, S.A.
−Removed: We are seeking damages for the taking of our Venezuelan drilling business in violation of international law and for breach of contract.
+Added: We are seeking damages for the seizure of our Venezuelan drilling business in violation of international law and for breach of contract.
While there exists the possibility of realizing a recovery, we are currently unable to determine the timing or amounts we may receive, if any, or the likelihood of recovery.
In March 2016, the Venezuelan government implemented the previously announced plans for a new foreign currency exchange system.
−Removed: Activity within discontinued operations for both fiscal years 2021 and 2020 is primarily a result of the impact of exchange rate fluctuations due to the remeasurement of an uncertain tax liability.
+Added: Activity within discontinued operations for both fiscal years 2022 and 2021 is caused by exchange rate fluctuations due to the remeasurement of an uncertain tax liability.
North America Solutions
3 unchanged sentences
Direct operating expenses 1,218,134 773,507 57.5
−Removed: Segment gross margin 252,857 532,103 (52.5)
Depreciation and amortization 375,250 392,415 (4.4)
1 unchanged sentence
Selling, general and administrative expense 43,796 51,089 (14.3)
−Removed: Asset impairment charge 70,850 406,548 (82.6)
+Added: Asset impairment charges 1,868 70,850 (97.4)
Restructuring charges 498 3,868 (87.1)
−Removed: Segment operating loss $ (287,176) $ (393,902) (27.1)
−Removed: Operating Statistics 1 :
+Added: Segment operating income (loss) $ 121,893 $ (287,176) (142.4)
+Added: Financial Data and Other Operating Statistics 1 :
+Added: Direct margin (Non-GAAP) 2
+Added: $ 570,033 $ 252,857 125.4
+Added: Revenue days 3
+Added: 59,672 39,199 52.2
Average active rigs 4
2 unchanged sentences
Reimbursements of "out-of-pocket" expenses $ 232,092 $ 113,897 103.8
−Removed: (1) These operating metrics allow investors to analyze the various components of segment financial results in terms of activity, utilization and other key results.
+Added: (1) These operating metrics and financial data, including average active rigs, are provided to 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.
−Removed: Beginning in the first quarter of fiscal year 2021, these operating metrics replaced previously used per day metrics.
−Removed: As a result, prior year comparative information is also provided above.
−Removed: Segment Gross Margin The North America Solutions segment gross margin was $252.9 million for the fiscal year ended September 30, 2021 compared to $532.1 million for the fiscal year ended September 30, 2020.
−Removed: The decrease was primarily driven by lower activity levels, lower early termination revenue, lower average rig pricing, and higher rig recommissioning expenses.
−Removed: Revenues were $1.0 billion and $1.5 billion in fiscal year 2021 and 2020, respectively.
−Removed: The decrease in operating revenue is primarily due to the factors mentioned above.
−Removed: Included in revenues for fiscal year 2021 is early termination revenue of $5.8 million
+Added: (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.
+Added: See — Non-GAAP Measurements below for a reconciliation of segment operating income (loss) to direct margin.
+Added: (3) Defined as the number of contractual days we recognized revenue for during the period.
+Added: (4) Active rigs generate revenue for the Company;
+Added: accordingly, 'average active rigs' represents the average number of rigs generating revenue during the applicable time period.
+Added: This metric is calculated by dividing revenue days by total days in the applicable period (i.e., 365 days).
+Added: (5) Defined as the number of rigs generating revenue at the applicable end date of the time period.
+Added: Operating Revenues Operating revenues were $1.8 billion and $1.0 billion in fiscal year 2022 and 2021, respectively.
+Added: Operating revenues increased $0.8 billion in fiscal year 2022 compared to fiscal year 2021.
+Added: This increase is primarily driven by higher pricing and higher activity levels.
+Added: Direct Operating Expenses Direct operating expenses increased to $1.2 billion during the fiscal year ended September 30, 2022 as compared to $0.8 billion during the fiscal year ended September 30, 2021.
+Added: This increase was primarily driven by an increase of $241.0 million in labor expense and an increase of $87.0 million in materials and supplies as we experienced higher activity levels and had an increase in field wages beginning in December 2021.
+Added: Depreciation and Amortization Depreciation expense decreased to $375.3 million during the fiscal year ended September 30, 2022 as compared to $392.4 million during the fiscal year ended September 30, 2021.
+Added: The decrease was primarily attributable to the termination of depreciation on eight rigs located in the U.S.
+Added: that were included in the ADNOC sale during the fourth quarter of fiscal year 2021 coupled with ongoing relatively low levels of capital expenditures during the 2022 fiscal year.
+Added: Selling, General and Administrative Expenses We had a $7.3 million decrease in selling, general and administrative costs during the fiscal year ended September 30, 2022 compared to the fiscal year ended September 30, 2021.
+Added: This decrease was primarily driven by a $5.3 million decrease in professional services fees.
2022 FORM 10-K | 42
−Removed: compared to $68.8 million during fiscal year 2020.
−Removed: 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 unacceptable performance by us).
−Removed: Direct operating expenses decreased to $773.5 million during the fiscal year ended September 30, 2021 as compared to $942.3 million during the fiscal year ended September 30, 2020 primarily due to the factors mentioned above.
−Removed: Depreciation Depreciation expense decreased to $392.4 million during the fiscal year ended September 30, 2021 as compared to $438.0 million during the fiscal year ended September 30, 2020.
−Removed: The decrease is primarily attributable to the absence of depreciation on the 71 rigs that were reclassified as held-for-sale during the second and third quarters of fiscal year 2021 and rig impairments during fiscal year 2020, in addition to ongoing low levels of capital expenditures.
−Removed: Asset Impairment Charge During the fiscal year ended September 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.
−Removed: This resulted in an impairment charge of $56.4 million ($43.3 million, net of tax, or $0.40 per diluted share.
−Removed: During the fiscal year ended September 30, 2021, we formalized a plan to sell assets related to two of our lower margin service offerings, trucking and casing running services, all within our North America Solutions segment.
−Removed: The combined net book values of these assets were written down to $8.8 million, which represents their combined fair value less cost to sell, and were reclassified as held-for-sale in the Consolidated Balance Sheets as of September 30, 2021.
−Removed: As a result, we recognized a non-cash impairment charge of $14.4 million ($10.9 million, net of tax, or $0.10 per diluted share).
−Removed: Comparatively, during the fiscal year ended September 30, 2020, we recorded an impairment charge of $406.5 million ($313.7 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, rotational inventory and goodwill.
+Added: Asset Impairment Charges During the fiscal year ended September 30, 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 Consolidated Balance Sheets.
+Added: 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 fiscal year ended September 30, 2022 in the Consolidated Statement of Operations.
+Added: Comparatively, during the fiscal year ended September 30, 2021, the Company developed 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.
+Added: This resulted in an impairment charge of $56.4 million during the year ended September 30, 2021.
+Added: During the same period, we also formalized a plan to sell assets related to two of our lower margin service offerings, trucking and casing running services, all within our North America Solutions segment, which resulted in a non-cash impairment charge of $14.4 million during the year ended September 30, 2021.
Restructuring Charges For the fiscal years ended September 30, 2022 and 2021, we incurred $0.5 million and $3.9 million, respectively, in restructuring charges.
The charges incurred during the fiscal year ended September 30, 2021 primarily included charges of $3.8 million related to the relocation of the Houston assembly facility and the downsizing of storage yards used for idle rigs.
−Removed: The charges incurred during the fiscal year ended September 30, 2020 were primarily comprised of $10.0 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
3 unchanged sentences
Direct operating expenses 90,415 97,249 (7.0)
−Removed: Segment gross margin 29,150 23,778 22.6
Depreciation 9,175 10,557 (13.1)
Selling, general and administrative expense 2,661 2,624 1.4
−Removed: Restructuring charges — 1,254 (100.0)
Segment operating income $ 23,214 $ 15,969 45.4
−Removed: Operating Statistics 1 :
+Added: Financial Data and Other Operating Statistics 1 :
+Added: Direct margin (Non-GAAP) 2
+Added: $ 35,050 $ 29,150 20.2
+Added: Revenue days 3
+Added: 1,460 1,552 (5.9)
Average active rigs 4
2 unchanged sentences
Reimbursements of "out-of-pocket" expenses $ 26,077 $ 27,388 (4.8)
−Removed: (1) These operating metrics allow investors to analyze the various components of segment financial results in terms of activity, utilization and other key results.
+Added: (1) These operating metrics and financial data, including average active rigs, are provided to 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.
−Removed: Beginning in the first quarter of fiscal year 2021, these operating metrics replaced previously used per day metrics.
−Removed: As a result, prior year comparative information is also provided above.
−Removed: Segment Gross Margin During the fiscal year ended September 30, 2021, the Offshore Gulf of Mexico segment gross margin was $29.2 million compared to a gross margin of $23.8 million for the fiscal year ended September 30, 2020.
−Removed: This increase was driven by the absence of $4.2 million of bad debt expense that was incurred during the fiscal year ended September 30, 2020.
−Removed: We had an 11.7 percent decrease in operating revenue during the fiscal year ended September 30, 2021 compared to the fiscal year ended September 30, 2020.
−Removed: 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.
−Removed: Direct operating expenses decreased to $97.2 million during the fiscal year ended September 30, 2021 as compared to $119.4 million during the fiscal year ended September 30, 2020.
−Removed: The decrease was primarily driven by the factors described above.
+Added: (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.
+Added: See — Non-GAAP Measurements below for a reconciliation of segment operating income (loss) to direct margin.
+Added: (3) Defined as the number of contractual days we recognized revenue for during the period.
+Added: (4) Active rigs generate revenue for the Company;
+Added: accordingly, 'average active rigs' represents the average number of rigs generating revenue during the applicable time period.
+Added: This metric is calculated by dividing revenue days by total days in the applicable period (i.e., 365 days).
+Added: (5) Defined as the number of rigs generating revenue at the applicable end date of the time period.
+Added: Operating Revenues Operating revenues were $125.5 million and $126.4 million in the fiscal year ended September 30, 2022 and 2021, respectively.
+Added: The 0.7 percent decrease in operating revenue is primarily driven by lower reimbursable expenses and the mix of rigs working at full rates as opposed to being on lower standby or mobilization rates, partially offset by pricing increases which occurred in the later portion of the 2022 fiscal year.
+Added: Direct Operating Expenses Direct operating expenses decreased to $90.4 million during the fiscal year ended September 30, 2022 as compared to $97.2 million during the fiscal year ended September 30, 2021.
+Added: The decrease was primarily driven by a $6.3 million favorable adjustment in self-insurance liabilities related to prior period claims coupled with the factors described above.
2022 FORM 10-K | 43
−Removed: Restructuring Charges We did not incur any restructuring charges during the fiscal year ended September 30, 2021.
−Removed: During the fiscal year ended September 30, 2020, we incurred $1.3 million in restructuring charges.
−Removed: Charges incurred during the fiscal year ended September 30, 2020 primarily consisted of employee termination benefits that resulted from our reduction in staffing levels.
International Solutions
3 unchanged sentences
Direct operating expenses 120,780 68,672 75.9
−Removed: Segment gross margin (10,755) 19,394 (155.5)
Depreciation 4,156 2,013 106.5
Selling, general and administrative expense 8,779 8,028 9.4
−Removed: Asset impairment charge — 156,686 (100.0)
+Added: Asset impairment charges 2,495 — —
Restructuring charges — 207 (100.0)
Segment operating loss $ (138) $ (21,003) (99.3)
−Removed: Operating Statistics 1 :
+Added: Financial Data and Other Operating Statistics 1 :
+Added: Direct margin (Non-GAAP) 2
+Added: $ 15,292 $ (10,755) (242.2)
+Added: Revenue days 3
+Added: 3,036 1,815 67.3
Average active rigs 4
2 unchanged sentences
Reimbursements of "out-of-pocket" expenses $ 4,910 $ 6,693 (26.6)
−Removed: (1) These operating metrics allow investors to analyze the various components of segment financial results in terms of activity, utilization and other key results.
+Added: (1) These operating metrics and financial data, including average active rigs, are provided to 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.
−Removed: Beginning in the first quarter of fiscal year 2021, these operating metrics replaced previously used per day metrics.
−Removed: As a result, prior year comparative information is also provided above.
−Removed: Segment Gross Margin The International Solutions segment gross margin was $(10.8) million for the fiscal year ended September 30, 2021 compared to a gross margin of $19.4 million for the fiscal year ended September 30, 2020.
−Removed: The change was primarily driven by lower activity levels coupled with fixed minimum levels of country overhead during the fiscal year ended September 30, 2021.
−Removed: We had a 59.8 percent decrease in operating revenue during the fiscal year ended September 30, 2021 compared to the fiscal year ended September 30, 2020.
−Removed: The decrease in operating revenue is primarily due to lower activity levels.
−Removed: Direct operating expenses decreased to $68.7 million during the fiscal year ended September 30, 2021 as compared to $124.8 million during the fiscal year ended September 30, 2020 and was driven by the factors described above.
−Removed: Asset Impairment Charge During the fiscal year ended September 30, 2021, we recorded no impairment charges.
−Removed: Comparatively, during the fiscal year ended September 30, 2020, we recorded an impairment charge of $156.7 million ($123.8 million, net of tax, or $1.45 per diluted share) resulting from our impairment of our International Conventional, FlexRig ® 3, and FlexRig ® 4 asset groups, in addition to rotational inventory.
−Removed: Restructuring Charges For the fiscal years ended September 30, 2021 and 2020, we incurred $0.2 million and $3.0 million in restructuring charges, respectively.
−Removed: During the fiscal year ended September 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.
−Removed: Charges incurred during the fiscal year ended September 30, 2020 primarily consisted of employee termination benefits that resulted from our reduction in staffing levels.
+Added: (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.
+Added: See — Non-GAAP Measurements below for a reconciliation of segment operating income (loss) to direct margin.
+Added: (3) Defined as the number of contractual days we recognized revenue for during the period.
+Added: (4) Active rigs generate revenue for the Company;
+Added: accordingly, 'average active rigs' represents the average number of rigs generating revenue during the applicable time period.
+Added: This metric is calculated by dividing revenue days by total days in the applicable period (i.e., 365 days).
+Added: (5) Defined as the number of rigs generating revenue at the applicable end date of the time period.
+Added: Operating Revenues Operating revenues increased $78.2 million in fiscal year 2022 compared to fiscal year 2021.
+Added: This increase is primarily driven by higher activity levels.
+Added: Additionally, in the first quarter of fiscal year 2022, we recognized $16.4 million in revenue related to the settlement of a contract drilling dispute related to drilling services provided from fiscal years 2016 through 2019 with YPF S.A.
+Added: Refer to Note 10—Revenue from Contracts with Customers for additional details.
+Added: Operating Expenses Direct operating expenses increased to $120.8 million during the fiscal year ended September 30, 2022 as compared to $68.7 million during the fiscal year ended September 30, 2021.
+Added: This increase was primarily driven by an increase of $25.9 million in labor expense and an increase of $25.4 million in materials and supplies as we experienced higher activity levels.
+Added: Asset Impairment Charges During the fiscal year ended September 30, 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 Consolidated Balance Sheets.
+Added: In conjunction with establishing a plan to sell these rigs we recognized a non-cash impairment charge of $2.5 million during the fiscal year ended September 30, 2022 in the 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.
+Added: During the fiscal year ended September 30, 2021, we recorded no impairment charges.
2022 FORM 10-K | 44
4 unchanged sentences
Direct operating expenses 50,683 50,064 1.2
−Removed: Gross margin (6,760) 8,087 (183.6)
Depreciation 1,701 1,426 19.3
3 unchanged sentences
Operating income (loss) $ 12,720 $ (9,704) (231.1)
−Removed: 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.
−Removed: Direct operating expenses consisted primarily of adjustments to accruals for estimated losses of $12.6 million and $16.4 million allocated to the Captive and rig and casualty insurance premiums of $21.9 million and $6.7 million during the fiscal years ended September 30, 2021 and 2020, respectively.
−Removed: The decrease in estimated losses is primarily due to actuarial valuation adjustments by our third-party actuary as well as lower activity levels.
−Removed: Intercompany premium revenues recorded by the Captive during the fiscal years ended September 30, 2021 and 2020 amounted to $35.4 million and $36.9 million, respectively, which were eliminated upon consolidation.
+Added: Operating Revenues We continue to use our Captive insurance companies to insure the deductibles for our domestic workers’ compensation, general liability, automobile liability claims programs, and medical stop-loss program and to insure the deductibles from the Company's international casualty and rig property programs.
+Added: Intercompany premium revenues recorded by the Captives during the fiscal years ended September 30, 2022 and 2021 amounted to $57.0 million and $35.4 million, respectively, which were eliminated upon consolidation.
+Added: Direct Operating Expenses Direct operating expenses consisted primarily of $7.0 million and $12.6 million in adjustments to accruals for estimated losses allocated to the Captives and rig and casualty insurance premiums of $35.6 million and $21.9 million during the fiscal years ended September 30, 2022 and 2021, respectively.
+Added: The change to accruals for estimated losses is primarily due to actuarial valuation adjustments by our third-party actuary.
Results of Operations for the Fiscal Years Ended September 30, 2021 and 2020
−Removed: A discussion of our results of operations for the fiscal year ended September 30, 2020 compared to the fiscal year ended September 30, 2019 is included in Part II, Item 7— "Management's Discussion and Analysis of Financial Condition and Results of Operations" of our Annual Report on Form 10-K for the fiscal year ended September 30, 2020, filed with the Securities and Exchange Commission ("SEC") on November 20, 2020 , and is incorporated by reference into this Form 10-K.
+Added: A discussion of our results of operations for the fiscal year ended September 30, 2021 compared to the fiscal year ended September 30, 2020 is included in Part II, Item 7— "Management's Discussion and Analysis of Financial Condition and Results of Operations" of our Annual Report on Form 10-K for the fiscal year ended September 30, 2021, filed with the Securities and Exchange Commission ("SEC") on November 18, 2021 .
Liquidity and Capital Resources
7 unchanged sentences
Treasury securities, U.S.
−Removed: Agency issued debt securities, corporate bonds and commercial paper, certificates of deposit and money market funds.
+Added: Agency issued debt securities, highly rated corporate bonds and commercial paper, certificates of deposit and money market funds.
+Added: However, in some international locations we may make short-term investments that are less conservative, as equivalent highly rated investments are unavailable.
+Added: 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.
−Removed: The effects of the COVID-19 pandemic 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.
−Removed: 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.
−Removed: Although the COVID-19 pandemic 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.
2022 FORM 10-K | 45
−Removed: 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 pandemic and the oil price collapse in 2020.
+Added: 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 rigs, the timing of collections on outstanding accounts receivable, the timing of payments to our vendors for operating costs, and capital expenditures.
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.
−Removed: To date, general inflationary trends have not had a material effect on our operating margins.
−Removed: As of September 30, 2021, we had $917.5 million of cash and cash equivalents on hand and $198.7 million of short-term investments.
+Added: 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.
+Added: As of September 30, 2022 and 2021, we had cash and cash equivalents of $232.1 million and $917.5 million and short-term investments of $117.1 million and $198.7 million, respectively.
+Added: During the fiscal year ended September 30, 2022, our cash, cash equivalents, and restricted cash balance decreased approximately $667.7 million compared to our balance at September 30, 2021.
+Added: This change was primarily driven by the redemption of all the outstanding 2025 Notes, resulting in a cash outflow of $487.1 million during the during the fiscal year ended September 30, 2022.
+Added: Additionally, 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.
Our cash flows for the fiscal years ended September 30, 2022, 2021 and 2020 are presented below:
5 unchanged sentences
Financing activities (734,305) 425,523 (297,220)
−Removed: Net increase in cash and cash equivalents and restricted cash $ 399,969 $ 153,776 $ 56,786
+Added: Net increase (decrease) in cash and cash equivalents and restricted cash $ (667,707) $ 399,969 $ 153,776
Operating Activities
−Removed: 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 and the current portion of long-term debt.
+Added: Our operating net working capital (non-GAAP) as of September 30, 2022, 2021, and 2020 is presented below:
+Added: Year Ended September 30,
+Added: (in thousands) 2022 2021 2020
+Added: Total current assets $ 1,002,944 $ 1,586,566 $ 963,327
+Added: Cash and cash equivalents 232,131 917,534 487,884
+Added: Short-term investments 117,101 198,700 89,335
+Added: Assets held-for-sale 4,333 71,453 —
+Added: 649,379 398,879 386,108
+Added: Total current liabilities 394,810 866,306 219,136
+Added: Dividends payable 26,693 27,332 27,226
+Added: Current portion of long-term debt, net — 483,486 —
+Added: Advance payment for sale of property, plant and equipment 600 86,524 —
+Added: $ 367,517 $ 268,964 $ 191,910
+Added: Operating net working capital (non-GAAP) $ 281,862 $ 129,915 $ 194,198
+Added: Cash flows provided by operating activities were approximately $233.9 million, $136.4 million, and $538.9 million for the fiscal year ended September 30, 2022, 2021, and 2020 respectively.
+Added: The change in cash provided by operating activities between fiscal years 2022 and 2021 is primarily driven by higher activity and rates, partially offset by changes in working capital.
+Added: The decrease in cash provided by operating activities between fiscal years 2021 and 2020 was primarily driven by lower operating activity and lower pricing.
+Added: 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.
+Added: 2022 FORM 10-K | 46
Operating net working capital was $281.9 million, $129.9 million and $194.2 million as of September 30, 2022, 2021 and 2020, respectively.
−Removed: The sequential decrease in net working capital was primarily driven by the receipt of the $86.5 million in cash consideration from ADNOC Drilling in advance of delivering the eight purchased rigs.
−Removed: The total cash proceeds were recorded within Accrued Liabilities within our Consolidated Balance Sheets as of September 30, 2021.
−Removed: This was partially offset by activity-driven increases in other components of our operating net working capital.
−Removed: Included in accounts receivable as of September 30, 2021 was $24.5 million of income tax receivables.
−Removed: Cash flows provided by operating activities were $136.4 million, $538.9 million and $855.8 million in fiscal years 2021, 2020 and 2019, respectively.
−Removed: The decrease in cash provided by operating activities is primarily driven by lower operating activity and lower pricing.
+Added: This metric is considered a non-GAAP measure of the Company's liquidity.
+Added: The Company considers operating net working capital to be a supplemental measure for presenting and analyzing trends in our cash flows from operations over time.
+Added: Likewise, the Company believes that operating net working capital is useful to investors because it provides a means to evaluate the operating performance of the business using criteria that are used by our internal decision makers.
+Added: The increase in operating net working capital between fiscal years 2022 and 2021 was primarily driven by higher rig activity and rates.
+Added: Included in accounts receivable as of September 30, 2022 was $27.8 million of income tax receivables, of which $24.9 million was received subsequent to fiscal year end.
+Added: The remainder is expected to be collected within the next fiscal year.
Investing Activities
Capital Expenditures Our capital expenditures were $250.9 million, $82.1 million and $140.8 million in fiscal years 2022, 2021 and 2020, respectively.
−Removed: The year-over-year decrease in capital expenditures is driven by lower maintenance capital expenditures as a result of lower activity.
+Added: The increase in capital expenditures between fiscal years 2022 and 2021 is driven by higher activity and spending on walking rig conversions.
+Added: The decrease in capital expenditures between fiscal years 2021 and 2020 was driven by lower maintenance capital expenditures as a result of lower activity.
Our fiscal year 2023 capital spending is currently estimated to be between $425 million and $475 million.
−Removed: This estimate includes normal capital maintenance requirements, information technology spending and skidding to walking conversions for a limited number of rigs.
−Removed: Purchase of Investments Our net (purchases) sales of investments were $(209.9) million, $(40.0) million and $1.1 million in fiscal years 2021, 2020 and 2019, respectively.
−Removed: The increase in purchases is attributable to our strategy to optimize our returns on investment, including our purchase of our cornerstone investment of $100.0 million in ADNOC Drilling.
−Removed: Acquisition of Business We paid $16.2 million, net of cash acquired, during fiscal year 2019, for the acquisition of drilling technology companies.
+Added: This estimate includes normal capital maintenance requirements, information technology spending, skidding to walking conversions for a limited number of rigs and plans to reactivate several super-spec rigs.
+Added: Purchases & Sales of Short-Term Investments Our net sales of short-term investments during fiscal year 2022 were $79.6 million compared to net purchases of $107.4 million and $40.0 million in fiscal years 2021 and 2020, respectively.
+Added: The change is driven by our ongoing liquidity management.
+Added: Purchases of Long-Term Investments Our net purchases of long-term investments were $29.2 million, $102.5 million and $0.6 million in fiscal years 2022, 2021 and 2020, respectively.
+Added: The decrease in net purchases between fiscal years 2022 and 2021 is primarily driven by our $100.0 million cornerstone investment in ADNOC Drilling purchased during fiscal year 2021, the $22.0 million of proceeds received from the liquidation of our remaining equity securities in Schlumberger, Ltd, during the fiscal year ended September 30, 2022, offset by the purchase of a $33.0 million cornerstone investment in a convertible note in Galileo Holdco 2 and the purchase of $18.2 million in various geothermal investments during fiscal year 2022.
+Added: The increase in net purchases between fiscal years 2021 and 2020 is primarily driven by our purchase of ADNOC Drilling equity securities (as mentioned above) during fiscal year 2021 and the absence of such activity in fiscal year 2020.
Sale of Assets Our proceeds from asset sales totaled $62.3 million, $43.5 million and $78.4 million in fiscal year 2022, 2021 and 2020, respectively.
−Removed: During the fiscal year ended September 30, 2020, we closed on the sale of a portion of our real estate investment portfolio, including six industrial sites, for total consideration, net of selling related expenses, of $40.7 million.
−Removed: Sale of Subsidiary In December 2019, we closed on the sale of a wholly-owned subsidiary of HPIDC, TerraVici Drilling Solutions, Inc.
−Removed: ("TerraVici").
−Removed: 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.
−Removed: Equity Securities As of September 30, 2021, our equity securities primarily consist of common shares in Schlumberger, Ltd.
−Removed: that, at the close of fiscal year 2021, had a fair value of $13.9 million.
−Removed: The value of our securities is subject to fluctuation in the market and may vary considerably over time.
−Removed: This investment is recorded at fair value on our Consolidated Balance Sheets.
−Removed: Refer to Note 13—Fair Value Measurement of Financial Instruments to our Consolidated Financial Statements.
−Removed: In September 2019, we sold our remaining 1.6 million shares in Valaris, previously known as Ensco Rowan plc, for total proceeds of approximately $12.0 million.
−Removed: 2021 FORM 10-K | 49
+Added: The increase in proceeds between fiscal years 2022 and 2021 is mainly driven by higher rig activity which drives higher reimbursement from customers for lost or damaged drill pipe.
+Added: The increase is also attributable to the sale of our casing running and trucking assets that occurred during the fiscal year ended September 30, 2022.
+Added: During the fiscal year ended September 30, 2020, we closed on the sale of a portion of our real estate investment portfolio, including six industrial sites, for total consideration, net of selling related expenses, of $40.7 million, which was the primary driver in the decrease in proceeds between fiscal years 2021 and 2020.
Advance Payment for Sale of Property, Plant and Equipment During September 2021, the Company agreed to sell eight FlexRig land rigs with an aggregate net book value of $55.6 million to ADNOC Drilling for $86.5 million.
−Removed: Two of the eight rigs were already located in the U.A.E where ADNOC Drilling is domiciled with the remaining six rigs to be shipped from the United States.
We received the $86.5 million in cash consideration in advance of delivering the rigs.
−Removed: As part of the sales agreement, the rigs will be delivered and commissioned in stages over a twelve-month period subject to acceptance upon successful completion of final inspection on customary terms and conditions.
−Removed: No rigs have been delivered to ADNOC Drilling as of September 30, 2021 and, therefore, the total cash proceeds of $86.5 million is recorded in Accrued Liabilities within our Consolidated Balance Sheets as of September 30, 2021.
Financing Activities
1 unchanged sentence
The repurchases may be made using our cash and cash equivalents or other available sources.
−Removed: We repurchased 1.5 million shares for $28.5 million during fiscal year 2020 and one million shares for $42.8 million during fiscal year 2019.
+Added: During the fiscal year ended September 30, 2022 and 2020, we repurchased 3.2 million common shares at an aggregate cost of $77.0 million and 1.5 million common shares at an aggregate cost of $28.5 million, respectively, which are held as treasury shares.
There were no purchases of common shares in fiscal year 2021.
−Removed: Dividends We paid dividends of $1.00, $2.38, and $2.84 per share during fiscal years 2021, 2020 and 2019, respectively.
+Added: Dividends We paid dividends of $1.00 per share during fiscal years 2022 and 2021 compared to $2.38 per share during fiscal year 2020.
Total dividends paid were $107.4 million, $109.1 million and $260.3 million in fiscal years 2022, 2021 and 2020, respectively.
A cash dividend of $0.25 per share was declared on September 7, 2022 for shareholders of record on November 15, 2022, payable on December 1, 2022.
−Removed: 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.
Debt Issuance Proceeds and Costs On September 29, 2021, we issued $548.7 million aggregate principal amount of the 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.
1 unchanged sentence
Debt issuance fees paid as of September 30, 2021 were $3.9 million.
−Removed: On October 27, 2021, we redeemed all of the outstanding 2025 Notes.
+Added: 2022 FORM 10-K | 47
+Added: 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.
+Added: 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.
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.
4 unchanged sentences
No other terms of the 2018 Credit Facility were amended in connection with this extension.
+Added: Additionally, on March 8, 2022, we entered into the second amendment to the 2018 Credit Facility, which, among other things, raised the number of potential future extensions of the maturity date applicable to extending lenders from one to two such potential extensions and replaced provisions in respect of interest rate determinations that were based on the London Interbank Offered Rate with provisions based on the Secured Overnight Financing Rate.
+Added: Lenders with $680.0 million of commitments under the 2018 Credit Facility also exercised their option to extend the maturity of the 2018 Credit Facility from November 12, 2025 to November 11, 2026.
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.
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.
−Removed: The 2018 Credit Facility also permits aggregate commitments under the facility to be increased by $300.0 million, subject to the satisfaction of certain conditions and the procurement of additional commitments from new or existing lenders.
−Removed: The borrowings under the 2018 Credit Facility accrue interest at a spread over either the London Interbank Offered Rate ("LIBOR") or an adjusted base rate (as defined in the credit agreement).
−Removed: We also pay a commitment fee on the unused balance of the facility.
−Removed: Borrowing spreads as well as commitment fees are determined based on the debt rating for senior unsecured debt of the Company, as determined by Moody’s and Standard & Poor's.
−Removed: The spread over LIBOR ranges from 0.875 percent to 1.500 percent per annum and commitment fees range from 0.075 percent to 0.200 percent per annum.
−Removed: Based on the unsecured debt rating of the Company on September 30, 2021, the spread over LIBOR would have been 1.125 percent had borrowings been outstanding under the 2018 Credit Facility and commitment fees are 0.125 percent.
−Removed: There is a financial covenant in the 2018 Credit Facility that requires us to maintain a total funded debt to total capitalization ratio of less than or equal to 50 percent.
−Removed: The 2018 Credit Facility contains additional terms, conditions, restrictions and covenants that we believe are usual and customary in unsecured debt arrangements for companies of similar size and credit quality, including a limitation that priority debt (as defined in the credit agreement) may not exceed 17.5 percent of the net worth of the Company.
As of September 30, 2022, there were no borrowings or letters of credit outstanding, leaving $750.0 million available to borrow under the 2018 Credit Facility.
−Removed: As of September 30, 2021, we had 3 separate outstanding letters of credit with banks, in the amounts of $24.8 million, $3.0 million and $2.1 million, respectively.
−Removed: As of September 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.
+Added: For a full description of the 2018 Credit Facility, see Note 7—Debt to the Consolidated Financial Statements.
+Added: As of September 30, 2022, we had $55.0 million in uncommitted bilateral credit facilities, for the purpose of obtaining the issuance of international letters of credit, bank guarantees, and performance bonds.
Of the $55.0 million, $38.1 million of financial guarantees were outstanding as of September 30, 2022.
−Removed: 2021 FORM 10-K | 50
+Added: Separately, we had $2.0 million in standby letters of credit and bank guarantees outstanding.
+Added: In total, we had $40.1 million outstanding as of September 30, 2022.
+Added: In October 2022, we increased one of our standby letters of credit by $1.9 million.
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.
4 unchanged sentences
The 2031 Notes will mature on September 29, 2031 and bear interest at a rate of 2.90 percent annum.
−Removed: Prior to June 29, 2031, the Company may redeem the 2031 Notes at its option, in whole or in part, at any time or from time to time at a redemption price equal to the greater of:
−Removed: (i) 100% of the principal amount of the 2031 Notes to be redeemed or (ii) the sum of the present values, as calculated by the Independent Investment Banker (as defined in the 2031 Notes Indenture (as defined herein)), of the remaining scheduled payments of principal and interest thereon (exclusive of the interest accrued to the redemption date) computed by discounting such payments to the redemption date on a semi-annual basis, assuming a 360-day year consisting of twelve 30-day months, at a rate equal to the sum of the Treasury Rate (as defined in the 2031 Notes Indenture) for such 2031 Notes plus 25 basis points, plus, in either case, accrued and unpaid interest, if any, to, but excluding, the redemption date (subject to the right of holders of record on the relevant record date to receive interest due on the relevant interest payment date).
−Removed: On or after June 29, 2031, the Company may redeem the 2031 Notes at its option, in whole or in part, at any time or from time to time at a redemption price equal to 100% of the principal amount of the 2031 Notes to be redeemed, plus accrued and unpaid interest thereon to, but excluding, the redemption date (subject to the right of holders of record on the relevant record date to receive interest due on the relevant interest payment date).
−Removed: The 2031 Notes were issued pursuant to an Indenture, dated as of December 20, 2018 (the “Base Indenture”), as supplemented by the Second Supplemental Indenture thereto, dated as of September 29, 2021 (together with the Base Indenture, the “2031 Notes Indenture”), in each case by and between the Company and Wells Fargo Bank, National Association, as trustee.
−Removed: The 2031 Notes Indenture 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;
+Added: In June 2022, we settled a registered exchange offer (the “Registered Exchange Offer”) to exchange the 2031 Notes for new, SEC-registered notes that are substantially identical to the terms of the 2031 Notes, except that the offer and issuance of the new notes have been registered under the Securities Act and certain transfer restrictions, registration rights and additional interest provisions relating to the 2031 Notes do not apply to the new notes.
+Added: One hundred percent of the 2031 Notes were exchanged in the Registered Exchange Offer.
+Added: 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.
−Removed: The 2031 Notes Indenture also contains customary events of default with respect to the 2031 Notes.
+Added: 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.
−Removed: Interest on the 2025 Notes is payable semi-annually on March 15 and September 15 of each year, commencing on March 15, 2019.
−Removed: The debt issuance costs are being amortized straight-line over the stated life of the obligation, which approximated the effective interest method.
+Added: 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.
1 unchanged sentence
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.
−Removed: On October 27, 2021, we redeemed all of the outstanding 2025 Notes.
−Removed: The associated make-whole premium and accrued interest of $58.1 million and the write off of the unamortized discount and debt issuance costs of $3.7 million will be recognized during the first fiscal quarter of 2022 contemporaneously with the October 27, 2021 redemption.
2022 FORM 10-K | 48
+Added: On October 27, 2021, we redeemed all of the outstanding 2025 Notes.
+Added: 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 Consolidated Statements of Operations during the fiscal year ended September 30, 2022.
Future Cash Requirements
3 unchanged sentences
We currently do not anticipate the need to draw on the 2018 Credit Facility.
−Removed: Our indebtedness under our long-term unsecured senior notes totaled $550.0 million at September 30, 2021 and matures on September 29, 2031.
+Added: Our indebtedness under our unsecured senior notes totaled $550.0 million at September 30, 2022 and matures on September 29, 2031.
As of September 30, 2022, we had a $537.7 million deferred tax liability on our Consolidated Balance Sheets, primarily related to temporary differences between the financial and income tax basis of property, plant and equipment.
−Removed: Our 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.
+Added: 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.
Future levels of capital expenditures and results of operations will determine the timing and amount of future cash tax payments.
3 unchanged sentences
The long‑term debt to total capitalization ratio was 16.6 percent at September 30, 2022 compared to 15.9 percent at September 30, 2021.
−Removed: For additional information regarding debt agreements, refer to Note 7—Debt to our Consolidated Financial Statements.
+Added: For additional information regarding debt agreements, refer to Note 7—Debt to the Consolidated Financial Statements.
+Added: There were no other significant changes in our financial position since September 30, 2021.
Material Commitments
Our contractual obligations as of September 30, 2022 are summarized in the table below:
−Removed: Payments due by year
+Added: Obligations due by year
(in thousands) Total 2023 2024 2025 2026 2027 Thereafter
−Removed: 1,037,148 487,148 — — — — 550,000
−Removed: 162,915 16,239 16,289 16,159 16,251 16,253 81,724
−Removed: Make-whole premium and accrued interest 3
+Added: Long-term debt 550,000 — — — — — 550,000
144,724 16,066 16,069 16,073 16,076 16,080 64,360
4 unchanged sentences
Total contractual obligations $ 874,937 $ 174,433 $ 23,870 $ 20,574 $ 18,109 $ 18,126 $ 619,825
−Removed: (1) On October 27, 2021, we redeemed the $487.1 million outstanding 2025 Notes.
−Removed: See Note 7—Debt to our Consolidated Financial Statements.
(1) Interest on fixed-rate 2031 Notes was estimated based on principal maturities.
See Note 7—Debt to our Consolidated Financial Statements.
−Removed: (3) On October 27, 2021, we redeemed all of the outstanding 2025 Notes, which resulted in the payment of a make-whole premium and accrued interest on the 2025 Notes.
−Removed: See Note 7—Debt to our Consolidated Financial Statements.
(2) See Note 5—Leases to our Consolidated Financial Statements.
25 unchanged sentences
Cash flows are estimated by management considering factors such as prospective market demand, recent changes in rig technology and its effect on each rig’s marketability, any cash investment required to make a rig marketable, suitability of rig size and makeup to existing platforms, and competitive dynamics including utilization.
−Removed: The fair value of drilling rigs is determined based upon either an income approach using estimated discounted future cash flows, a market approach considering factors such as recent market sales of rigs of other companies and our own sales of rigs, appraisals and other factors, a cost approach utilizing reproduction costs new as adjusted for the asset age and condition, and/or a combination of multiple approaches.
+Added: The fair value of drilling rigs is determined based upon either an income approach using estimated discounted future cash flows, a market approach considering factors such as recent market sales of rigs of other companies and our own sales of rigs, appraisals and other factors, a cost approach utilizing new reproduction costs adjusted for the asset age and condition, and/or a combination of multiple approaches.
The use of different assumptions could increase or decrease the estimated fair value of assets and could therefore affect any impairment measurement.
22 unchanged sentences
Revenue Recognition
−Removed: Drilling services and solutions revenues are comprised of daywork drilling contracts for which the related revenues and expenses are recognized as services are performed and collection is reasonably assured.
−Removed: For certain contracts, we receive payments contractually designated for the mobilization of rigs and other drilling equipment.
−Removed: Mobilization payments received, and direct costs incurred for the mobilization, are deferred and recognized on a straight-line basis as the drilling service is provided.
−Removed: Costs incurred to relocate rigs and other drilling equipment to areas in which a contract has not been secured are expensed as incurred.
−Removed: Reimbursements received for out‑of‑pocket expenses are recorded as revenue.
+Added: Drilling services revenues are primarily comprised of daywork drilling contracts for which the related revenues and expenses are recognized as services are performed and collection is reasonably assured.
+Added: With most drilling contracts, we receive payments contractually designated for the mobilization and demobilization of drilling rigs and other equipment to and from the client’s drill site.
+Added: Revenue associated with the mobilization and demobilization of our drilling rigs to and from the client’s drill site do not relate to a distinct good or service.
+Added: These revenues are deferred and recognized ratably over the related contract term that drilling services are provided.
+Added: The amount of demobilization revenue that we ultimately collect is dependent upon the specific contractual terms, most of which include provisions for reduced or no payment for demobilization when, among other things, the contract is renewed or extended with the same client, or when the rig is subsequently contracted with another client prior to the termination of the current contract.
+Added: Since revenues associated with demobilization activity are typically variable, at each period end, they are estimated at the most likely amount, and constrained when the likelihood of a significant reversal is probable.
+Added: Direct costs incurred for the mobilization, are deferred and recognized on a straight-line basis as the drilling service is provided.
+Added: While costs incurred to relocate rigs and other drilling equipment to areas in which a contract has not been secured are expensed as incurred.
+Added: We also act as a principal for certain reimbursable services and auxiliary equipment provided by us to our clients, for which we incur costs and earn revenues.
+Added: Many of these costs are variable, or dependent upon the activity that is performed each day under the related contract.
+Added: Accordingly, reimbursements that we receive for out-of-pocket expenses are recorded as revenues and the out-of-pocket expenses for which they relate are recorded as operating costs during the period to which they relate within the series of distinct time increments.
For contracts that are terminated prior to the specified term, early termination payments received by us are recognized as revenues when all contractual requirements are met.
8 unchanged sentences
See Note 2—Summary of Significant Accounting Policies, Risks and Uncertainties to our Consolidated Financial Statements for recently adopted accounting standards and new accounting standards not yet adopted.
+Added: Non-GAAP Measurements
+Added: Direct Margin
+Added: Direct margin is considered a non-GAAP metric.
+Added: We define "Direct margin" as operating revenues less direct operating expenses.
+Added: Direct margin 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.
+Added: Direct margin is not a substitute for financial measures prepared in accordance with GAAP and should therefore be considered only as supplemental to such GAAP financial measures.
+Added: 2022 FORM 10-K | 51
+Added: 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.
+Added: Year Ended September 30, 2022
+Added: (in thousands) North America Solutions Offshore Gulf of Mexico International Solutions
+Added: Segment operating income (loss) $ 121,893 $ 23,214 $ (138)
+Added: Depreciation and amortization 375,250 9,175 4,156
+Added: Research and development 26,728 — —
+Added: Selling, general and administrative expense 43,796 2,661 8,779
+Added: Asset impairment charges 1,868 — 2,495
+Added: Restructuring charges 498 — —
+Added: Direct margin (Non-GAAP) $ 570,033 $ 35,050 $ 15,292
+Added: Year Ended September 30, 2021
+Added: (in thousands) North America Solutions Offshore Gulf of Mexico International Solutions
+Added: Segment operating income (loss) $ (287,176) $ 15,969 $ (21,003)
+Added: Depreciation and amortization 392,415 10,557 2,013
+Added: Research and development 21,811 — —
+Added: Selling, general and administrative expense 51,089 2,624 8,028
+Added: Asset impairment charges 70,850 — —
+Added: Restructuring charges 3,868 — 207
+Added: Direct margin (Non-GAAP) $ 252,857 $ 29,150 $ (10,755)
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.