What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2023-04-26 compared with 2023-01-30 · 274 added, 128 removed, 290 unchanged (58% of the section changed)

26 unchanged sentences

Q2FY23 FORM 10-Q | 30

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

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

• our financial condition and liquidity;

10 unchanged sentences

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

As of 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.

As of March 31, 2023, our drilling rig fleet included a total of 262 drilling rigs.

Our reportable operating business segments consist of the North America Solutions segment with 233 rigs, the Offshore Gulf of Mexico segment with seven offshore platform rigs and the International Solutions segment with 22 rigs as of March 31, 2023.

At the close of the second quarter of fiscal year 2023, we had 198 active contracted rigs, of which 109 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.

18 unchanged sentences

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 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 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.

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 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.

While overall customer capital budgets for calendar year 2023 appear to be modestly higher than those experienced in calendar year 2022, recent commodity price volatility, particularly the weakness in natural gas prices, has resulted in some customers, typically smaller ones, reducing activity and/or shifting activity to more crude oil centric basins at least temporarily.

This has led to some idle super-spec rigs being readily available in the market.

That said, we do not expect this level of idle supply in the market to have a material impact on overall rig pricing.

We do see the potential for some of this recently idled super-spec capacity, especially as it relates to the Company's idled rigs, to be redeployed later in the calendar year 2023.

With regards to our North America Solutions segment, recent volatility in natural gas prices and resulting reduced rig demand has contributed to an increased level of rig releases in the market.

These factors, in combination with the Company's fiscally disciplined approach to deploying capital and prioritizing economic margins over rig utilization, results in our belief that our active rig count will not likely reach 191 rigs during fiscal 2023 as previously projected.

Having deployed 12 of the 16 potential fiscal 2023 rig reactivations during the first six months of fiscal year 2023, the Company's rig count sits at 179 active rigs as of March 31, 2023, with eight rigs available for rapid redeployment should customer demand warrant.

Going forward into the final six months of fiscal year 2023, we expect additional rigs releases, which we project will result in a lower average Company active rig count relative to the first six months of fiscal year 2023.

However, despite the lower activity outlook, we believe the Company's pricing discipline will result in a higher average revenue per day during the last six months of fiscal year 2023 relative to the first six months.

Furthermore, we still believe the supply and demand dynamics surrounding our North America Solutions segment remain constructive for future activity and pricing levels.

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.

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.

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

However, one current active offshore rigs is expected to mobilize 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

Credit Facility Extension

On February 10, 2023, 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 11, 2026 to November 12, 2027.

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.

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.

In October 2022, we made 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.

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 March 31, 2023.

In April 2023, Tamboran appointed an executive of the Company to its Board of Directors.

During the three and six months ended March 31, 2023, we recognized a gain (loss) of $(3.0) million and $0.1 million, respectively, recorded within Gain 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.

Q2FY23 FORM 10-Q | 32

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.

During the six months ended March 31, 2023, we entered into a 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.

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 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.

As of March 31, 2023 and September 30, 2022, our contract drilling backlog, being the expected future dayrate revenue from executed contracts, was $1.3 billion and $1.2 billion, respectively.

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

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

The increase in backlog at March 31, 2023 from September 30, 2022 is primarily due to the increase in contract pricing for fixed term drilling contracts executed during the period.

Approximately 45.1 percent of the March 31, 2023 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 March 31, 2023 and September 30, 2022, and the percentage of the March 31, 2023 backlog reasonably expected to be fulfilled in fiscal year 2024 and thereafter:

(in billions) March 31, 2023 September 30, 2022 Percentage Reasonably

Expected to be Fulfilled in Fiscal Year 2024

8 unchanged sentences

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

Results of Operations for the Three Months Ended March 31, 2023 and 2022

Consolidated Results of Operations

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.

Net Income (Loss) We reported income from continuing operations of $163.9 million ($1.55 per diluted share) from operating revenues of $769.2 million for the three months ended March 31, 2023 compared to a loss from continuing operations of $4.6 million ($0.05 loss per diluted share) from operating revenues of $467.6 million for the three months ended March 31, 2022.

Included in net income for the three months ended March 31, 2023 is income of $0.1 million (with no impact on a per diluted share basis) from discontinued operations.

Including discontinued operations, we recorded net income of $164.0 million ($1.55 per diluted share) for the three months ended March 31, 2023 compared to a net loss of $5.0 million ($0.05 loss per diluted share) for the three months ended March 31, 2022.

Operating Revenue Consolidated operating revenues were $769.2 million and $467.6 million for the three months ended March 31, 2023 and 2022, respectively.

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.

Direct Operating Expenses, Excluding Depreciation and Amortization Direct operating expenses were $450.3 million and $340.9 million for the three months ended March 31, 2023 and 2022, respectively.

The increase was primarily attributable to the aforementioned higher activity levels as well as a North America Solutions wage increase that became effective at the end of fiscal year 2022.

Selling, General and Administrative Expense Selling, general and administrative expenses increased to $52.9 million during the three months ended March 31, 2023 compared to $47.1 million during the three months ended March 31, 2022.

The increase is primarily due to a $3.0 million increase in labor expenses and a $1.6 million increase in professional fees.

Q2FY23 FORM 10-Q | 33

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.

Gain on Investment Securities During the three months ended March 31, 2023, we recognized an aggregate gain of $39.8 million on investment securities compared to a gain of $22.1 million during the three months ended March 31, 2022.

This gain was comprised of a $42.6 million gain on our equity investment in ADNOC Drilling and offset by a $3.0 million loss on our equity investment in Tamboran as a result of changes in the fair value of these investments during the period.

Comparatively, we recorded a gain of $16.7 million on our investment in ADNOC Drilling during the three months ended March 31, 2022.

Income Taxes We used an estimated annual effective tax rate for purposes of determining the income tax provision for the three months ended March 31, 2023.

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

For the three months ended March 31, 2023, we had income tax expense of $51.1 million compared to income tax expense of $2.7 million for the three months ended March 31, 2022.

Our statutory federal income tax rate for fiscal year 2023 and 2022 is 21.0 percent (before incremental state and foreign taxes).

North America Solutions

Three Months Ended March 31,

(in thousands, except operating statistics) 2023 2022 % Change

Operating revenues $ 675,780 $ 408,814 65.3 %

Direct operating expenses 379,611 294,397 28.9

Depreciation and amortization 89,070 95,817 (7.0)

Research and development 8,738 6,420 36.1

Selling, general and administrative expense 16,212 10,883 49.0

Segment operating income $ 182,149 $ 1,297 13,943.9

Financial Data and Other Operating Statistics 1 :

Direct margin (Non-GAAP) 2

$ 296,169 $ 114,417 158.9

Revenue days 3

16,488 14,752 11.8

Average active rigs 4

Number of active rigs at the end of period 5

Number of available rigs at the end of period 233 236 (1.3)

Reimbursements of "out-of-pocket" expenses $ 77,442 $ 46,664 66.0

(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 (i.e., 90 days).

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

Operating Revenues Operating revenues were $675.8 million and $408.8 million in the three months ended March 31, 2023 and 2022, respectively.

The $267.0 million increase in operating revenue is primarily due to higher pricing levels and an 11.8 percent increase in activity levels.

Direct Operating Expenses Direct operating expenses increased to $379.6 million during the three months ended March 31, 2023 as compared to $294.4 million during the three months ended March 31, 2022.

This increase was primarily due to an increase of $46.7 million in labor expense driven by higher activity levels and increased field wages beginning in late September 2022.

Additionally, materials and supplies expense increased $4.4 million, which was also driven by higher activity levels.

Depreciation and Amortization Depreciation expense decreased to $89.1 million during the three months ended March 31, 2023 as compared to $95.8 million during the three months ended March 31, 2022.

The decrease is 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 $16.2 million during the three months ended March 31, 2023 as compared to $10.9 million during the three months ended March 31, 2022.

The increase was largely driven by a $3.6 million increase in professional fees.

Q2FY23 FORM 10-Q | 34

Offshore Gulf of Mexico

Three Months Ended March 31,

(in thousands, except operating statistics) 2023 2022 % Change

Operating revenues $ 34,979 $ 29,147 20.0 %

Direct operating expenses 25,688 20,884 23.0

Depreciation 1,904 2,401 (20.7)

Selling, general and administrative expense 700 584 19.9

Segment operating income $ 6,687 $ 5,278 26.7

Financial Data and Other Operating Statistics 1 :

Direct margin (Non-GAAP) 2

$ 9,291 $ 8,263 12.4

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 7 7 —

Reimbursements of "out-of-pocket" expenses $ 7,994 $ 5,809 37.6

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 (i.e., 90 days).

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

Operating Revenues Operating revenues were $35.0 million and $29.1 million in the three months ended March 31, 2023 and 2022, 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 March 31, 2023 as compared to $20.9 million during the three months ended March 31, 2022.

The increase was primarily driven by the mix of rigs working at full utilization as opposed to mobilizing or being on standby, in addition to the factors described above.

Q2FY23 FORM 10-Q | 35

International Solutions

Three Months Ended March 31,

(in thousands, except operating statistics) 2023 2022 % Change

Operating revenues $ 55,890 $ 27,422 103.8 %

Direct operating expenses 47,275 25,171 87.8

Depreciation 1,652 1,049 57.5

Selling, general and administrative expense 3,008 2,050 46.7

Segment operating income (loss) $ 3,955 $ (848) 566.4

Financial Data and Other Operating Statistics 1 :

Direct margin (Non-GAAP) 2

$ 8,615 $ 2,251 282.7

Revenue days 3

1,263 636 98.6

Average active rigs 4

Number of active rigs at the end of period 5

Number of available rigs at the end of period 22 28 (21.4)

Reimbursements of "out-of-pocket" expenses $ 2,789 $ 1,226 127.5

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 (i.e., 90 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 $55.9 million during the three months ended March 31, 2023 compared to $27.4 million during the three months ended March 31, 2022.

This increase is primarily driven by a 98.6 percent increase in activity levels.

Direct Operating Expenses Direct operating expenses increased to $47.3 million during the three months ended March 31, 2023 as compared to $25.2 million during the three months ended March 31, 2022.

This increase was primarily driven by an increase of $10.5 million in labor expenses and an increase of $9.9 million in materials and supplies given higher activity levels.

Other Operations

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

Three Months Ended March 31,

(in thousands) 2023 2022 % Change

Operating revenues $ 20,235 $ 15,418 31.2 %

Direct operating expenses 12,656 11,208 12.9

Depreciation 456 370 23.2

Selling, general and administrative expense 300 673 (55.4)

Operating income $ 6,823 $ 3,167 115.4

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 March 31, 2023 and 2022 amounted to $17.7 million and $13.2 million, respectively, which were eliminated upon consolidation.

Direct Operating Expenses Direct operating expenses consisted primarily of $1.7 million and $1.8 million in adjustments to accruals for estimated losses allocated to the Captives and rig and casualty insurance premiums of $10.9 million and $7.9 million during the three months ended March 31, 2023 and 2022, respectively.

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

Q2FY23 FORM 10-Q | 36

Results of Operations for the Six Months Ended March 31, 2023 and 2022

Consolidated Results of Operations

Net Income (Loss) We reported income from continuing operations of $260.3 million ($2.45 per diluted share) from operating revenues of $1.5 billion for the six months ended March 31, 2023 compared to a loss from continuing operations of $56.0 million ($0.53 loss per diluted share) from operating revenues of $877.4 million for the six months ended March 31, 2022.

Included in net income for the six months ended March 31, 2023 is income of $0.9 million ($0.01 per diluted share) from discontinued operations.

Including discontinued operations, we recorded net income of $261.2 million ($2.46 per diluted share) for the six months ended March 31, 2023 compared to a net loss of $56.3 million ($0.53 loss per diluted share) for the six months ended March 31, 2022.

Operating Revenue Consolidated operating revenues were $1.5 billion for the six months ended March 31, 2023 and $877.4 million for the six months ended March 31, 2022.

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 six months ended March 31, 2023 were $879.7 million, compared to $641.8 million for the six months ended March 31, 2022.

The increase was primarily attributable to the aforementioned higher activity levels as well as a North America Solutions wage increase that became effective at the end of fiscal year 2022.

Selling, General and Administrative Expense Selling, general and administrative expenses increased to $101.3 million during the six months ended March 31, 2023 compared to $90.8 million during the six months ended March 31, 2022.

The increase is primarily due to a $5.2 million increase in professional fees and a $2.9 million increase in labor expenses.

Asset Impairment Charges During the six months ended March 31, 2023, 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).

Comparatively, during the six months ended March 31, 2022, we identified two partial rig substructures and two international FlexRig ® drilling rigs that met the assets held-for-sale criteria and were reclassified as assets held-for-sale on our Unaudited Condensed Consolidated Balance Sheets.

This resulted in an impairment charge of $4.4 million as the book values of these rig substructures were written down to their estimated scrap value of $0.1 million and the international drilling rigs were written down to their fair value less estimated cost to sell of $0.9 million.

Gain on Investment Securities During the six months ended March 31, 2023, we recognized an aggregate gain of $24.7 million on investment securities compared to a gain of $70.0 million during the six months ended March 31, 2022.

This gain mainly comprised of a $24.4 million gain on our equity investment in ADNOC Drilling caused by an increase in the fair market value of the stock.

Comparatively, we recorded a gain of $64.5 million on this investment during the six months ended March 31, 2022.

Income Taxes We used an estimated annual effective tax rate for purposes of determining the income tax provision for the six months ended March 31, 2023.

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

For the six months ended March 31, 2023 we had income tax expense of $83.5 million (which includes discrete tax expense of $0.2 million related to equity compensation) compared to an income tax benefit of $4.9 million for the six months ended March 31, 2022 (which included discrete tax expense of $4.1 million related to equity compensation).

Our statutory federal income tax rate for fiscal year 2023 and 2022 is 21.0 percent (before incremental state and foreign taxes).

Q2FY23 FORM 10-Q | 37

North America Solutions

Three Months Ended December 31,

Six Months Ended March 31,

(in thousands, except operating statistics) 2023 2022 % Change

13 unchanged sentences

Average active rigs 4

180.2 140.7 28.1

Number of active rigs at the end of period 5

10 unchanged sentences

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

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.

Operating Revenues Operating revenues were $1.3 billion and $0.7 billion in the six months ended March 31, 2023 and 2022, respectively.

The $0.6 billion increase in operating revenue is primarily due to higher pricing levels and a 19.4 percent increase in activity levels.

Direct Operating Expenses Direct operating expenses increased to $746.5 million during the six months ended March 31, 2023 as compared to $551.0 million during the six months ended March 31, 2022.

This increase was primarily driven by a $104.2 million increase in labor expense driven by higher activity levels and increased field wages beginning in late September 2022.

Additionally, materials and supplies expense increased $20.5 million, which was also driven by higher activity levels.

Depreciation and Amortization Depreciation expense decreased to $178.9 million during the six months ended March 31, 2023 as compared to $189.4 million during the six months ended March 31, 2022.

The decrease is 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 $30.4 million during the six months ended March 31, 2023 as compared to $21.7 million during the six months ended March 31, 2022.

The increase was largely driven by a $6.3 million increase in professional fees.

Asset Impairment Charges During the six months ended March 31, 2023, 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 same period, 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 six months ended March 31, 2023.

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

During the six months ended March 31, 2022, we identified two partial rig substructures that met the assets held-for-sale criteria and were reclassified as assets held-for-sale on our Unaudited Condensed Consolidated Balance Sheets.

This resulted in an impairment charge of $1.9 million as the book values of these rig substructures were written down to their estimated scrap value of $0.1 million.

Q2FY23 FORM 10-Q | 38

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.

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 December 31,

Six Months Ended March 31,

(in thousands, except operating statistics) 2023 2022 % Change

21 unchanged sentences

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

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

Operating Revenues Operating revenues were $70.1 million and $58.5 million during the six months ended March 31, 2023 and 2022, 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.

Direct Operating Expenses Direct operating expenses increased to $51.4 million during the six months ended March 31, 2023 as compared to $41.6 million during the six months ended March 31, 2022.

The increase was primarily driven by the mix of rigs working at full utilization as opposed to mobilizing or being on standby, in addition to the factors described above.

Q2FY23 FORM 10-Q | 39

International Solutions

Three Months Ended December 31,

Six Months Ended March 31,

(in thousands, except operating statistics) 2023 2022 % Change

11 unchanged sentences

Average active rigs 4

12.3 7.0 76.2

Number of active rigs at the end of period 5

10 unchanged sentences

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

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.

Operating Revenues Operating revenues increased to $110.7 million during the six months ended March 31, 2023 compared to $64.6 million during the six months ended March 31, 2022.

This increase is primarily driven by a 87.3 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.

Additionally, during the six months ended March 31, 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.

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

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.

Direct Operating Expenses Direct operating expenses increased to $88.3 million during the six months ended March 31, 2023 as compared to $49.3 million during the six months ended March 31, 2022.

This increase was primarily driven by an increase of $17.8 million in labor expense and an increase of $15.1 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.

Asset Impairment Charges During the six months ended March 31, 2023, 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 March 31, 2023.

During the six months ended March 31, 2022, we identified two international FlexRig ® drilling rigs that met the assets held-for-sale criteria and were reclassified as assets held-for-sale on our Unaudited Condensed Consolidated Balance Sheets.

This resulted in an impairment charge of $2.5 million as the book values of these international drilling rigs were written down to their fair value less estimated cost to sell of $0.9 million.

Q2FY23 FORM 10-Q | 40

1 unchanged sentence

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,

Six Months Ended March 31,

(in thousands) 2023 2022 % Change

5 unchanged sentences

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.

Intercompany premium revenues recorded by the Captives during the six months ended March 31, 2023 and 2022 amounted to $34.1 million and $26.9 million, respectively, which were eliminated upon consolidation.

Direct Operating Expenses Direct operating expenses consisted primarily of $4.7 million and $(0.4) million in adjustments to accruals for estimated losses allocated to the Captives and rig and casualty insurance premiums of $20.9 million and $16.7 million during the six months ended March 31, 2023 and 2022, respectively.

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

10 unchanged sentences

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

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

See—Note 2—Summary of Significant Accounting Policies and Related 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.

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.

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

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

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,

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

Q2FY23 FORM 10-Q | 41

As of March 31, 2023, we had cash and cash equivalents of $159.7 million and short-term investments of $85.1 million.

Our cash flows for the six months ended March 31, 2023, and 2022 are presented below:

Six Months Ended March 31,

(in thousands) 2023 2022

3 unchanged sentences

Financing activities (263,154) (680,915)

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

Net decrease in cash and cash equivalents and restricted cash $ (56,106) $ (707,340)

Operating Activities

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

December 31, September 30,

Our operating net working capital (non-GAAP) as of March 31, 2023 and September 30, 2022 is presented below:

March 31, September 30,

(in thousands) 2023 2022

9 unchanged sentences

Operating net working capital (non-GAAP) $ 395,028 $ 281,862

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.

Cash flows provided by operating activities were approximately $326.3 million and $18.9 million for the six months ended March 31, 2023 and 2022, respectively.

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

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.

Operating net working capital was $395.0 million and $281.9 million as of March 31, 2023 and September 30, 2022, respectively.

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

3 unchanged sentences

Investing Activities

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.

Capital Expenditures Our capital expenditures during the six months ended March 31, 2023 were $181.5 million compared to $104.5 million during the six months ended March 31, 2022.

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.

Sales of Short-Term Investments Our net sales of short-term investments during the six months ended March 31, 2023 were $33.3 million compared to $48.9 million during the six months ended March 31, 2022.

The change is driven by our ongoing liquidity management.

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.

Purchases of Long-Term Investments Our net purchases of long-term investments during the six months ended March 31, 2023 were $18.8 million compared to $14.1 million during the six months ended March 31, 2022.

The increase is primarily driven by our purchase of $14.1 million equity investment in Tamboran Resources Limited and $4.1 million in debt and equity security investments in various geothermal energy companies.

Q2FY23 FORM 10-Q | 42

Sale of Assets Our proceeds from asset sales during the six months ended March 31, 2023 were $47.7 million compared to proceeds of $34.9 million during the six months ended March 31, 2022.

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 $0.485 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.

Dividends We paid dividends of $0.97 per share, comprised of a base cash dividend of $0.50 and a supplemental cash dividend of $0.47, during the six months ended March 31, 2023.

Comparatively, during the six months ended March 31, 2022, we paid dividends of $0.50 per share.

Total dividends paid were $102.9 million and $54.0 million during the six months ended March 31, 2023 and 2022, respectively.

A base cash dividend of $0.25 per share and a quarterly supplemental cash dividend of $0.235 per share was declared on March 1, 2023 for shareholders of record on May 18, 2023, payable on June 1, 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.

4 unchanged sentences

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 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

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 January 1, 2023.

The repurchases may be made using our cash and cash equivalents or other available sources and are held as treasury shares on our Unaudited Condensed Consolidated Balance Sheets.

During the six months ended March 31, 2023, we repurchased 3.4 million common shares, at an aggregate cost of $145.8 million, including excise tax of $0.8 million and 3.2 million common shares were repurchased at an aggregate cost of $77.0 million during the six months ended March 31, 2022.

Credit Facility

On November 13, 2018, we entered into a credit agreement by and among the Company, as borrower, Wells Fargo Bank, National Association, as administrative agent, and the lenders party thereto, which was amended on November 13, 2019, providing for an unsecured revolving credit facility (as amended, the “2018 Credit Facility”), that was set to mature on November 13, 2024.

1 unchanged sentence

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

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.

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, 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 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.

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.

As of March 31, 2023, 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 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.

As of March 31, 2023, 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 March 31, 2023.

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.

In total, we had $42.1 million outstanding as of March 31, 2023.

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

At March 31, 2023, we were in compliance with all debt covenants.

Q2FY23 FORM 10-Q | 43

4 unchanged sentences

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.

All 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;

8 unchanged sentences

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 three months ended December 31, 2021.

As a result, the associated make-whole premium of $56.4 million and the write off of the unamortized discount and debt issuance costs of $3.7 million were recognized during the first fiscal quarter of 2022 contemporaneously with the October 27, 2021 debt extinguishment and recorded in Loss on extinguishment of debt on our Unaudited Condensed Consolidated Statements of Operations during the six months ended March 31, 2022.

Future Cash Requirements

3 unchanged sentences

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

Our indebtedness under our unsecured senior notes totaled $550.0 million at December 31, 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 indebtedness under our unsecured senior notes totaled $550.0 million at March 31, 2023 and matures on September 29, 2031.

As of March 31, 2023, we had a $540.3 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.

1 unchanged sentence

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

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

At March 31, 2023, 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 16.7 percent at December 31, 2022 and 16.6 percent at September 30, 2022.

The long‑term debt to total capitalization ratio was 16.6 percent at March 31, 2023 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.

There were no other significant changes in our financial position since September 30, 2022.

Material Commitments

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.

Q2FY23 FORM 10-Q | 44

Material Commitments

Material commitments as reported in our 2022 Annual Report on Form 10-K have not changed significantly at March 31, 2023, other than those disclosed in Note 12—Commitments and Contingencies to the Unaudited Condensed Consolidated Financial Statements.

Critical Accounting Policies and Estimates

2 unchanged sentences

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.

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

Non-GAAP Measurements

5 unchanged sentences

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 December 31, 2022

Three Months Ended March 31, 2023

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

3 unchanged sentences

Selling, general and administrative expense 16,212 700 3,008

Direct margin (Non-GAAP) $ 296,169 $ 9,291 $ 8,615

Three Months Ended March 31, 2022

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

Segment operating income (loss) $ 1,297 $ 5,278 $ (848)

Depreciation and amortization 95,817 2,401 1,049

Research and development 6,420 — —

Selling, general and administrative expense 10,883 584 2,050

Direct margin (Non-GAAP) $ 114,417 $ 8,263 $ 2,251

Q2FY23 FORM 10-Q | 45

Six Months Ended March 31, 2023

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

Segment operating income $ 327,446 $ 13,433 $ 5,529

Depreciation and amortization 178,884 3,798 3,044

Research and development 15,797 — —

Selling, general and administrative expense 30,402 1,533 5,717

Asset impairment charges 3,948 — 8,149

Direct margin (Non-GAAP) $ 556,477 $ 18,764 $ 22,439

Three Months Ended December 31, 2021

Six Months Ended March 31, 2022

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

6 unchanged sentences

Direct margin (Non-GAAP) $ 198,883 $ 16,866 $ 15,279

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