What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-01-30 compared with 2022-07-27 · 168 added, 324 removed, 250 unchanged (66% of the section changed)

16 unchanged sentences

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

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

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

• the ongoing effect and impact of public health crises, such as the coronavirus ("COVID-19") pandemic;

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

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

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

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

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

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

• our financial condition and liquidity;

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

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

Important factors that could cause actual results to differ materially from our expectations or results discussed in the forward‑looking statements are disclosed in our 2022 Annual Report on Form 10‑K under Part I, Item 1A— “Risk Factors” and Item 7— “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” All subsequent written and oral forward‑looking statements attributable to us, or persons acting on our behalf, are expressly qualified in their entirety by such cautionary statements.

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

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

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

Our reportable operating business segments consist of the North America Solutions segment with 236 rigs, the Offshore Gulf of Mexico segment with seven offshore platform rigs and the International Solutions segment with 28 rigs as of June 30, 2022.

At the close of the third quarter of fiscal year 2022, we had 188 contracted rigs, of which 122 were under a fixed-term contract and 66 were working well-to-well, compared to 137 contracted rigs at September 30, 2021.

As of December 31, 2022, our drilling rig fleet included a total of 262 drilling rigs.

Our reportable operating business segments consist of the North America Solutions segment with 235 rigs, the Offshore Gulf of Mexico segment with seven offshore platform rigs and the International Solutions segment with 20 rigs as of December 31, 2022.

At the close of the first quarter of fiscal year 2023, we had 201 active contracted rigs, of which 112 were under a fixed-term contract and 89 were working well-to-well, compared to 192 contracted rigs at September 30, 2022.

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

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.

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.

Market Outlook

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

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

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.

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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.

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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.

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

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

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

The capital budgets for calendar year 2023 have not yet been established by many of our customers;

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 modestly higher than that experienced in calendar year 2022.

In recent years the U.S.

demand for super-spec rigs has strengthened.

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

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

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

however, much of that idle capacity represents rigs that have not been active for almost three years and in some cases even longer.

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.

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

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

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

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

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

Our North America Solutions active rig count has more than tripled from lows related to the COVID pandemic of 47 rigs in August 2020 to 184 rigs at December 31, 2022.

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 up to 191 rigs during fiscal 2023.

Included in our fiscal year 2023 capital budget were plans to activate a maximum of 16 rigs subject to customer demand.

Through December 31, 2022, we reactivated and deployed nine additional rigs, while another active rig was damaged and removed from service resulting in a net addition of eight rigs during the quarter.

The remaining seven potential rig reactivations will be subject to market conditions and customer demand.

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

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

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

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

As the largest provider of super-spec rigs in the U.S., H&P is not immune from supply-chain challenges, potential labor constraints, or inflationary pressures that can arise as a result of these matters.

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.

From the demand perspective we expect incremental rig demand to moderate relative to what we have seen during the past two years, but the overall demand to remain at a relatively robust level.

We believe the confluence of these supply and demand dynamics to remain constructive for contract pricing during fiscal 2023.

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

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

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

We do not foresee much activity or margin change in our Offshore Gulf of Mexico segment during the second fiscal quarter.

However, there is potential that one currently active offshore rigs mobilizes to the yard during the fourth fiscal quarter after completing its current contract.

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

Recent Developments

Investments in Geothermal Energy

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

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

These companies are developing an enhanced geothermal system ("EGS") and closed loop concepts.

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

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

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

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

Investment in ADNOC Drilling

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

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

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

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

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

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

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

Investment in Galileo Technologies

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

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

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

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

Two of our Directors are independent directors of Galileo Parent.

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

Pension Plan Lump-sum Distribution

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

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

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

Investment in Tamboran

In October 2022, we purchased a $14.1 million equity investment, representing 106 million common shares (approximately 7.5 percent ownership stake), in Tamboran Resources Limited ("Tamboran"), a publicly traded company on the Australian Securities Exchange Ltd under the ticker "TBN." Tamboran is focused on playing a constructive role in the global energy transition towards a lower carbon future, by developing a significantly low CO 2 gas resource within Australia's Beetaloo Sub-basin.

Concurrent with the investment agreement, we entered into a fixed-term drilling services agreement with the same investee for which mobilization is expected to commence later this fiscal year.

Approximately $30.3 million in revenue is expected to be earned over the term of the contract, and, as such, this amount is included within our contract backlog as of December 31, 2022.

During the three months ended December 31, 2022, we recognized a gain of $3.1 million recorded within Gain (Loss) on Investment Securities on our Unaudited Condensed Consolidated Statements of Operations, as a result of the change in fair value of the investment during the period.

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Significant Lease Not Yet Commenced

During the three months ended December 31, 2022, we entered into a new lease agreement for our new Tulsa corporate office.

This lease is expected to commence sometime during the first half of calendar year 2024.

The initial lease term is approximately 12 years with two unpriced five-year extension options.The aggregate future non-cancelable lease payments are estimated to be approximately $15.1 million.

Contract Backlog

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

As of December 31, 2022 and September 30, 2022, our contract drilling backlog, being the expected future dayrate revenue from executed contracts, was $1.4 billion and $1.2 billion, respectively.

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

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

Approximately 60.7 percent of the June 30, 2022 total backlog is reasonably expected to be fulfilled in fiscal year 2023 and thereafter.

The following table sets forth the total backlog by reportable segment as of June 30, 2022 and September 30, 2021, and the percentage of the June 30, 2022 backlog reasonably expected to be fulfilled in fiscal year 2023 and thereafter:

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

The increase in backlog at December 31, 2022 from September 30, 2022 is primarily due to the increase in contract pricing for fixed term drilling contracts executed during the period.

Approximately 29.6 percent of the December 31, 2022 total backlog is reasonably expected to be fulfilled in fiscal year 2024 and thereafter.

The following table sets forth the total backlog by reportable segment as of December 31, 2022 and September 30, 2022, and the percentage of the December 31, 2022 backlog reasonably expected to be fulfilled in fiscal year 2024 and thereafter:

(in billions) December 31, 2022 September 30, 2022 Percentage Reasonably

Expected to be Fulfilled in Fiscal Year 2024

and Thereafter

North America Solutions $ 1.1 $ 0.9 24.0 %

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International Solutions 0.3 0.3 52.3

$ 862.2 $ 572.0

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

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Early terminations could cause the actual amount of revenue earned to vary from the backlog reported.

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 ,” in our 2021 Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”), regarding fixed term contract risk.

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 our 2021 Annual Report on Form 10-K.

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

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 our 2022 Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”), regarding fixed term contract risk.

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 our 2022 Annual Report on Form 10-K.

Results of Operations for the Three Months Ended December 31, 2022 and 2021

Consolidated Results of Operations

Net Income (Loss) We reported income from continuing operations of $17.5 million ($0.16 per diluted share) on operating revenues of $550.2 million for the three months ended June 30, 2022 compared to a loss from continuing operations of $56.7 million ($0.53 loss per diluted share) on operating revenues of $332.2 million for the three months ended June 30, 2021.

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

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

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

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

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

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

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

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

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

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

and received proceeds of approximately $22.0 million.

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

Income Taxes We had income tax expense of $1.7 million for the three months ended June 30, 2022 (which includes discrete tax expense of approximately $6.5 million primarily related to an increase in our deferred state income tax rate and return to provision adjustments) compared to an income tax benefit of $23.7 million for the three months ended June 30, 2021 (which includes discrete tax benefits of approximately $5.8 million related to a decrease in our deferred state income tax rate and return to provision adjustments).

Net Income (Loss) We reported income from continuing operations of $96.4 million ($0.90 per diluted share) from operating revenues of $719.6 million for the three months ended December 31, 2022 compared to a loss from continuing operations of $58.9 million ($0.48 loss per diluted share) from operating revenues of $409.8 million for the three months ended December 31, 2021.

Included in net income for the three months ended December 31, 2022 is income of $0.7 million ($0.01 per diluted share) from discontinued operations.

Including discontinued operations, we recorded net income of $97.1 million ($0.91 per diluted share) for the three months ended December 31, 2022 compared to a net loss of $51.4 million ($0.48 loss per diluted share) for the three months ended December 31, 2021.

Operating Revenue Consolidated operating revenues were $719.6 million for the three months ended December 31, 2022 and $409.8 million for the three months ended December 31, 2021.

The increase is 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.

Refer to segment results below for further details.

Direct Operating Expenses, Excluding Depreciation and Amortization Direct operating expenses for the three months ended December 31, 2022 were $429.4 million, compared to $300.8 million for the three months ended December 31, 2021.

The increase was primarily attributable to the aforementioned higher activity levels.

Selling, General and Administrative Expense Selling, general and administrative expenses increased to $48.5 million during the three months ended December 31, 2022 compared to $43.7 million during the three months ended December 31, 2021.

The increase is primarily due to a $3.6 million increase in professional fees.

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Asset Impairment Charges During the three months ended December 31, 2022, we recorded $12.1 million in asset impairment charges as the Company initiated a plan to decommission, scrap and/or sell certain assets including four international FlexRig ® drilling rigs, four international conventional drilling rigs, and additional equipment.

The aggregate net book value of these assets of $13.2 million was written down to their estimated scrap value of $1.1 million.

Comparatively, we had an impairment charge of $4.4 million for the three months ended December 31, 2021 as two Domestic partial rig substructures and two international FlexRig ® drilling rigs were reclassified as assets held-for sale and the book values of these rigs were written down to their estimated scrap value of $0.1 million and fair value less estimated cost to sell of $0.9 million respectively.

Gain (Loss) on Investment Securities During the three months ended December 31, 2022, we recognized an aggregate loss of $15.1 million on investment securities compared to a gain of $47.9 million during the three months ended December 31, 2021.

This loss was comprised of a $3.1 million gain on our equity investment in Tamboran as a result of the change in fair value of the investment during the period.

This gain is offset by a $18.2 million loss on our equity investment in ADNOC Drilling caused by a decrease in the fair market value of the stock, compared to a gain of $47.7 million during the three months ended December 31, 2021.

Income Taxes We had income tax expense of $32.4 million for the three months ended December 31, 2022 (which includes discrete tax expense of $0.2 million related to equity compensation) compared to an income tax benefit of $7.6 million for the three months ended December 31, 2021 (which included discrete tax expense of $3.5 million related to equity compensation).

Our statutory federal income tax rate for fiscal year 2023 is 21.0 percent (before incremental state and foreign taxes).

North America Solutions

Three Months Ended June 30,

(in thousands, except operating statistics) 2022 2021

Three Months Ended December 31,

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

Operating revenues $ 627,163 $ 341,034 83.9 %

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Selling, general and administrative expense 14,190 10,829 31.0

Asset impairment charge — 2,130 (100.0)

Asset impairment charges 3,948 1,868 111.3

Restructuring charges — 473 (100.0)

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Average active rigs 4

180.2 140.7 28.1

Number of active rigs at the end of period 5

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

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

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

This metric is calculated by dividing revenue days by total days in the applicable period (i.e., 92 days).

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

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

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

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

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

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

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

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

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

Operating Revenues Operating revenues were $627.2 million and $341.0 million in the three months ended December 31, 2022 and 2021, respectively.

The $286.2 million increase in operating revenue is primarily due to a 28.1 percent increase in activity levels and higher pricing levels.

Direct Operating Expenses Direct operating expenses increased to $366.9 million during the three months ended December 31, 2022 as compared to $256.6 million during the three months ended December 31, 2021.

This increase was primarily due to an increase of $57.5 million in labor expense and an increase of $16.1 million in materials and supplies driven by higher activity levels and increased field wages beginning in early December 2021 and late September 2022.

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Depreciation and Amortization Depreciation expense decreased to $89.8 million during the three months ended December 31, 2022 as compared to $93.6 million during the three months ended December 31, 2021.

The decrease was primarily attributable to the relatively low levels of capital expenditures during the last twelve months.

Selling, General and Administrative Expense Selling, general and administrative expense increased to $14.2 million during the three months ended December 31, 2022 as compared to $10.8 million during the three months ended December 31, 2021.

The increase was largely driven by the $2.7 million increase in professional fees.

Asset Impairment Charges During the three months ended December 31, 2022, our North America Solutions assets that were previously classified as Assets Held-for-Sale at September 30, 2022 were either sold or written down to scrap value.

The aggregate net book value of these remaining assets was $3.0 million, which exceeded the estimated scrap value of $0.3 million, resulting in a non-cash impairment charge of $2.7 million during the three months ended December 31, 2022.

During the three months ended December 31, 2022, we also identified additional equipment that met the asset held-for-sale criteria and was reclassified as Assets Held-for-Sale on our Unaudited Condensed Consolidated Balance Sheets.

The aggregate net book value of the equipment of $1.4 million was written down to its estimated scrap value of $0.1 million, resulting in a non-cash impairment charge of $1.3 million during the three months ended December 31, 2022.

These impairment charges are recorded within our North America Solutions segment in our Unaudited Condensed Consolidation Statement of Operations.

This is compared to an impairment charge of $1.9 million for the three months ended December 31, 2021 as two partial rig substructures were reclassified as assets held-for sale and the book values of these rigs were written down to their estimated scrap value of $0.1 million.

Offshore Gulf of Mexico

Three Months Ended June 30,

Three Months Ended December 31,

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

19 unchanged sentences

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

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

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

This metric is calculated by dividing revenue days by total days in the applicable period (i.e., 92 days).

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

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

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

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

The decrease was primarily driven by the factors described above.

Operating Revenues Operating revenues were $35.2 million and $29.3 million in the three months ended December 31, 2022 and 2021, respectively.

The 20.0 percent increase in operating revenue is primarily driven by pricing increases and wage increase pass-throughs which occurred in the latter portion of fiscal year 2022.

Direct Operating Expenses Direct operating expenses increased to $25.7 million during the three months ended December 31, 2022 as compared to $20.7 million during the three months ended December 31, 2021.

The increase was primarily driven by a $3.2 million increase in self-insurance liabilities related to prior period claims coupled with the mix of rigs working at full utilization as opposed to mobilizing or being on standby, in addition to the factors described above.

Q1FY23 FORM 10-Q | 32

International Solutions

Three Months Ended June 30,

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

Operating revenues $ 29,118 $ 15,278 90.6

Direct operating expenses 32,364 16,690 93.9

Depreciation 1,175 573 105.1

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

Restructuring charges — 207 (100.0)

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

Financial Data and Other Operating Statistics 1 :

Direct margin (Non-GAAP) 2

(3,246) (1,412) 129.9

Revenue days 3

Average active rigs 4

Number of active rigs at the end of period 5

Number of available rigs at the end of period 28 32 (12.5)

Reimbursements of "out-of-pocket" expenses $ 699 $ 1,152 (39.3)

(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.

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

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

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

(4) Active rigs generate revenue for the Company;

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

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

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

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

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

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

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

This increase was primarily driven by the factors described above.

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

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

Other Operations

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

Three Months Ended June 30,

(in thousands) 2022 2021 % Change

Operating revenues $ 17,135 $ 11,818 45.0

Direct operating expenses 14,690 15,865 (7.4)

Depreciation 480 357 34.5

Research and development — 5 (100.0)

Selling, general and administrative expense — 261 (100.0)

Operating income (loss) $ 1,965 $ (4,670) (142.1)

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

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

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

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

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

Consolidated Results of Operations

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

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

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

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

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

Asset Impairment Charge During the nine months ended June 30, 2022, we identified various assets that met the asset held-for-sale criteria and were reclassified as assets held-for-sale on our Unaudited Condensed Consolidated Balance Sheets.

The combined net book value of these assets was $5.4 million and were written down to their estimated fair value less cost to sell of $1.0 million, resulting in a non-cash impairment charge of $4.4 million, within our North America Solutions and International Solutions segment.

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

During the nine months ended June 30, 2021, we undertook a plan to sell 71 Domestic non-super-spec rigs, all within our North America Solutions segment, the majority of which were previously decommissioned, written down and/or held as spares, which resulted in an impairment charge of $56.4 million for the nine months ended June 30, 2021.

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

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

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

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

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

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

As a result, the associated make-whole premium of $56.4 million and the write off of the unamortized discount and debt issuance costs of $3.7 million were recognized during the first fiscal quarter of 2022 contemporaneously with the October 27, 2021 debt extinguishment and recorded in Loss on Extinguishment of Debt on our Unaudited Condensed Consolidated Statements of Operations during the nine months ended June 30, 2022.

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

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

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

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

North America Solutions

Nine Months Ended June 30,

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

Operating revenues $ 1,235,852 $ 733,061 68.6

Direct operating expenses 869,365 549,322 58.3

Depreciation and amortization 283,050 297,238 (4.8)

Research and development 19,533 16,400 19.1

Selling, general and administrative expense 31,781 37,223 (14.6)

Asset impairment charge 1,868 56,414 (96.7)

Restructuring charges 498 2,969 (83.2)

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

Financial Data and Other Operating Statistics 1 :

Direct margin (Non-GAAP) 2

366,487 183,739 99.5

Revenue days 3

43,494 27,770 56.6

Average active rigs 4

Number of active rigs at the end of period 5

Number of available rigs at the end of period 236 242 (2.5)

Reimbursements of "out-of-pocket" expenses $ 157,010 $ 79,361 97.8

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

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

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

(4) Active rigs generate revenue for the Company;

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

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

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

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

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

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

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

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

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

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

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

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

Asset Impairment Charge During the first quarter of fiscal year 2022, we identified two partial rig substructures that met the asset held-for-sale criteria and were reclassified as assets held-for-sale on our Unaudited Condensed Consolidated Balance Sheets.

The combined net book value of these assets of $2.0 million were written down to their estimated scrap value of $0.1 million, resulting in a non-cash impairment charge of $1.9 million during the nine months ended June 30, 2022 in the Unaudited Condensed Consolidated Statement of Operations.

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

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

Offshore Gulf of Mexico

Nine Months Ended June 30,

Three Months Ended December 31,

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

3 unchanged sentences

Selling, general and administrative expense 2,709 1,729 56.7

Asset impairment charges 8,149 2,495 226.6

Segment operating income $ 1,574 $ 8,049 (80.4)

5 unchanged sentences

Average active rigs 4

Number of active rigs at the end of period 5

Number of available rigs at the end of period 7 7 —

Reimbursements of "out-of-pocket" expenses $ 19,103 $ 21,403 (10.7)

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

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

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

(4) Active rigs generate revenue for the Company;

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

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

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

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

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

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

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

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

International Solutions

Nine Months Ended June 30,

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

Operating revenues $ 93,699 $ 40,609 130.7

Direct operating expenses 81,666 50,931 60.3

Depreciation 2,979 1,361 118.9

Selling, general and administrative expense 5,908 3,463 70.6

Asset impairment charge 2,495 — 100.0

Restructuring charges — 207 (100.0)

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

Financial Data and Other Operating Statistics 1 :

Direct margin (Non-GAAP) 2

12.3 7.0 76.2

Revenue days 3

2,010 1,229 63.5

Average active rigs 4

Number of active rigs at the end of period 5

8 unchanged sentences

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

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

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

This metric is calculated by dividing revenue days by total days in the applicable period (i.e., 92 days).

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

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

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

Operating Revenues Operating revenues increased to $54.8 million during the three months ended December 31, 2022 compared to $37.2 million during the three months ended December 31, 2021.

This increase is primarily driven by a 76.2 percent increase in activity levels.

Additionally, during the three months ended December 31, 2021, 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.

Refer to Note 8—Revenue from Contracts with Customers for additional details.

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

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

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

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

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

Asset Impairment Charge During the first quarter of fiscal year 2022, we identified two international FlexRig ® drilling rigs that met the asset held-for-sale criteria and were reclassified as assets held-for-sale on our Unaudited Condensed Consolidated Balance Sheets.

In conjunction with establishing a plan to sell these rigs we recognized a non-cash impairment charge of $2.5 million during the nine months ended June 30, 2022 in the Unaudited Condensed Consolidated Statement of Operations, as the aggregate net book value of $3.4 million exceeded the fair value less estimated cost to sell of $0.9 million.

Direct Operating Expenses Direct operating expenses increased to $41.0 million during the three months ended December 31, 2022 as compared to $24.1 million during the three months ended December 31, 2021.

This increase was primarily driven by an increase of $7.3 million in labor expense and an increase of $5.2 million in materials and supplies given higher activity levels.

Asset Impairment Charges During the three months ended December 31, 2022, the Company initiated a plan to decommission and scrap four international FlexRig ® drilling rigs and four conventional drilling rigs located in Argentina that are not suitable for unconventional drilling.

As a result, these rigs were reclassified to Assets Held-for-Sale on our Unaudited Condensed Consolidated Balance Sheets as of December 31, 2022.

The rigs’ aggregate net book value of $8.8 million was written down to the estimated scrap value of $0.7 million, which resulted in a non-cash impairment charge of $8.1 million within our International Solutions segment and recorded in our Unaudited Condensed Consolidated Statement of Operations during the three months ended December 31, 2022.

During the three months ended December 31, 2021, we recorded $2.5 million in asset impairment charges as two international FlexRig® drilling rigs were reclassified as assets held-for sale and the book values of these rigs were written down to their fair value less estimated cost to sell of $0.9 million.

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Other Operations

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

Nine Months Ended June 30,

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

Three Months Ended December 31,

(in thousands) 2022 2021 % Change

2 unchanged sentences

Depreciation 457 345 32.5

Research and development — 127 (100.0)

Selling, general and administrative expense 188 329 (42.9)

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

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

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

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

Operating income $ 4,677 $ 3,929 19.0

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.

Intercompany premium revenues recorded by the Captives during the three months ended December 31, 2022 and 2021 amounted to $16.4 million and $13.6 million, respectively, which were eliminated upon consolidation.

Direct Operating Expenses Direct operating expenses consisted primarily of $2.9 million and $(2.2) million in adjustments to accruals for estimated losses allocated to the Captives and rig and casualty insurance premiums of $10.0 million and $8.8 million during the three months ended December 31, 2022 and 2021, respectively.

The change to accruals for estimated losses is primarily due to actuarial valuation adjustments by our third-party actuary.

Liquidity and Capital Resources

4 unchanged sentences

During periods when internally generated cash flows are not sufficient to meet liquidity needs, we may utilize cash on hand, borrow from available credit sources, access capital markets or sell our investments.

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

Likewise, if we are generating excess cash flows or have cash balances on hand beyond our near-term needs, we may return cash to shareholders through dividends or share repurchases, or we may invest in highly rated short‑term money market and debt securities.

These investments can include U.S.

5 unchanged sentences

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.

Q1FY23 FORM 10-Q | 34

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.

1 unchanged sentence

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

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

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

Nine Months Ended June 30,

As of December 31, 2022, we had cash and cash equivalents of $229.2 million and short-term investments of $118.5 million.

Our cash flows for the fiscal years ended December 31, 2022, and 2021 are presented below:

Three Months Ended December 31,

(in thousands) 2022 2021

3 unchanged sentences

Financing activities (100,557) (635,610)

Net decrease in cash and cash equivalents and restricted cash $ (714,127) $ (114,875)

Net increase (decrease) in cash and cash equivalents and restricted cash $ 2,649 $ (684,057)

Operating Activities

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

June 30, September 30,

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

December 31, September 30,

(in thousands) 2022 2022

6 unchanged sentences

Dividends payable 51,540 26,693

Current portion of long-term debt, net — 483,486

Advance payment for sale of property, plant and equipment — 600

1 unchanged sentence

Operating net working capital (non-GAAP) $ 311,389 $ 281,862

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

Cash flows provided by (used in) operating activities were approximately $185.4 million and $(3.7) million for the three months ended December 31, 2022 and 2021, respectively.

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

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

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

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

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 advance payments for sale of property, plant and equipment.

Operating net working capital was $311.4 million and $281.9 million as of December 31, 2022 and September 30, 2022, respectively.

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

1 unchanged sentence

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.

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

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

The increase in operating net working capital was primarily driven by higher rig activity and rates.

Investing Activities

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

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

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

Capital Expenditures Our capital expenditures during the three months ended December 31, 2022 were $96.0 million compared to $44.0 million during the three months ended December 31, 2021.

The increase in capital expenditures is driven by higher activity and increased costs associated with rig upgrades and reactivations.

Q1FY23 FORM 10-Q | 35

Purchases & Sales of Short-Term Investments Our net purchases of short-term investments during the three months ended December 31, 2022 were $0.9 million compared to $9.3 million during the three months ended December 31, 2021.

The change is driven by our ongoing liquidity management.

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

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

during the nine months ended June 30, 2022.

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

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

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

Purchases of Long-Term Investments Our net purchases of long-term investments during the three months ended December 31, 2022 were $16.2 million compared to $9.0 million during the three months ended December 31, 2021.

The increase is primarily driven by our purchase of $14.1 million equity investment in Tamboran Resources Limited.

Sale of Assets Our proceeds from asset sales during the three months ended December 31, 2022 were $31.0 million compared to proceeds of $21.5 million during the three months ended December 31, 2021.

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

Financing Activities

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

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

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

Dividends We paid dividends of $0.485 per share, comprised of a base cash dividend of $0.25 and a supplemental cash dividend of $0.235, during the three months ended December 31, 2022.

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

Total dividends paid were $51.8 million and $27.3 million during the three months ended December 31, 2022 and 2021, respectively.

A base cash dividend of $0.25 per share was declared on December 9, 2022 and a quarterly supplemental cash dividend of $0.235 per share for shareholders of record on February 14, 2023, payable on February 28, 2023.

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.

1 unchanged sentence

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

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

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.

Additional details are fully discussed in Note 5—Debt.

Repurchase of Shares The Company has an evergreen authorization from the Board of Directors for the repurchase of up to four million common shares in any calendar year.

In December 2022, the Board of Directors increased the maximum number of shares authorized to be repurchased in calendar year 2023 to five million common shares, effective on January 1, 2023.

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

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

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

During the three months ended December 31, 2022 and 2021, we repurchased 0.8 million common shares at an aggregate cost of $39.1 million and 2.5 million common shares at an aggregate cost of $60.4 million, respectively, which are held as treasury shares.

Credit Facilities

2 unchanged sentences

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

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

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.

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.

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.

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

As of June 30, 2022, there were no borrowings or letters of credit outstanding, leaving $750.0 million available to borrow under the 2018 Credit Facility.

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

For a full description of the 2018 Credit Facility, see Note 7—Debt to the Consolidated Financial Statements in our 2022 Annual Report on Form 10-K.

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

As of June 30, 2022, we also had a $20.0 million unsecured standalone line of credit facility, for the purpose of obtaining the issuance of international letters of credit, bank guarantees, and performance bonds.

Of the $20.0 million, $5.8 million of financial guarantees were outstanding as of June 30, 2022.

As of December 31, 2022, we had $95.0 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 $95.0 million, $40.0 million was outstanding as of December 31, 2022.

Separately, we had $2.1 million in standby letters of credit and bank guarantees outstanding.

In total, we had $42.1 million outstanding as of December 31, 2022.

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

At June 30, 2022, we were in compliance with all debt covenants, and we anticipate that we will continue to be in compliance during the next quarter of fiscal year 2022.

At December 31, 2022, we were in compliance with all debt covenants.

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

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

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

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

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.

One hundred percent of the 2031 Notes were exchanged in the Registered Exchange Offer.

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;

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

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

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

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

Future Cash Requirements

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

Our indebtedness under our unsecured senior notes totaled $550.0 million at June 30, 2022 and matures on September 29, 2031.

As of June 30, 2022, we had a $527.5 million deferred tax liability on our Unaudited Condensed Consolidated Balance Sheets, primarily related to temporary differences between the financial and income tax basis of property, plant and equipment.

Our indebtedness under our unsecured senior notes totaled $550.0 million at December 31, 2022 and matures on September 29, 2031.

As of December 31, 2022, we had a $537.3 million deferred tax liability on our Unaudited Condensed Consolidated Balance Sheets, primarily related to temporary differences between the financial and income tax basis of property, plant and equipment.

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

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

At June 30, 2022, we had $4.6 million recorded for uncertain tax positions and related interest and penalties.

At December 31, 2022, we had $3.2 million recorded for uncertain tax positions and related interest and penalties.

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

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

The long‑term debt to total capitalization ratio was 16.7 percent at December 31, 2022 and 16.6 percent at September 30, 2022.

For additional information regarding debt agreements, refer to Note 5—Debt to the Unaudited Condensed Consolidated Financial Statements.

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Material Commitments

Material commitments as reported in our 2021 Annual Report on Form 10-K have not changed significantly at June 30, 2022, other than those disclosed in Note 6—Debt and Note 13—Commitments and Contingencies to the Unaudited Condensed Consolidated Financial Statements.

Material commitments as reported in our 2022 Annual Report on Form 10-K have not changed significantly at December 31, 2022, other than those disclosed in Note 12—Commitments and Contingencies to the Unaudited Condensed Consolidated Financial Statements.

Q1FY23 FORM 10-Q | 37

Critical Accounting Policies and Estimates

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

Recently Issued Accounting Policies

Recently Issued Accounting Standards

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

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

Three Months Ended June 30, 2022

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

Segment operating income (loss) $ 57,353 $ 5,872 $ (6,550)

Depreciation and amortization 93,612 2,328 1,175

Research and development 6,545 — —

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

Restructuring charges 25 — —

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

Three Months Ended June 30, 2021

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

Segment operating income (loss) $ (43,743) $ 5,707 $ (3,538)

Depreciation and amortization 96,997 2,938 573

Research and development 5,605 — —

Selling, general and administrative expense 12,583 592 1,346

Asset impairment charge 2,130 — —

Restructuring charges 1,388 — 207

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

Nine Months Ended June 30, 2022

Three Months Ended December 31, 2022

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

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Selling, general and administrative expense 14,190 833 2,709

Asset impairment charge 1,868 — 2,495

Restructuring charges 498 — —

Asset impairment charges 3,948 — 8,149

Direct margin (Non-GAAP) $ 260,308 $ 9,473 $ 13,824

Nine Months Ended June 30, 2021

Three Months Ended December 31, 2021

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

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Selling, general and administrative expense 10,829 757 1,729

Asset impairment charge 56,414 — —

Asset impairment charges 1,868 — 2,495

Restructuring charges 473 — —

Direct margin (Non-GAAP) $ 84,466 $ 8,603 $ 13,028

Q1FY23 FORM 10-Q | 38

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis