Item 7A. Quantitative and Qualitative Disclosures About Market Risk
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our financial position is exposed to a variety of risks, including foreign currency exchange rate risk, commodity price risk, credit and capital market risk, interest rate risk and equity price risk.
Foreign Currency Exchange Rate Risk
The Company has a number of subsidiaries that generate revenue and incur expenses in numerous foreign currencies. Changes in foreign currency exchange rates impact the Company's results of operations through changes in the dollar value of foreign currency-denominated operating revenues and expenses. Some of the Company's more significant foreign currency exposures include the British Pound Sterling, Euro, Norwegian Krone, Canadian Dollar, Angolan Kwanza, Pakistani Rupee, Colombian Peso and Argentine Peso. We have not entered into any foreign currency forward exchange contracts or other derivative financial instruments to hedge the effects of adverse fluctuations in foreign currency exchange rates. At September 30, 2025, a uniform 10% decline in the U.S. dollar relative to each of the currencies in which the Company has foreign currency exposure would result in an increase in pre-tax loss of approximately $5.6 million.
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Commodity Price Risk
The demand for drilling services and solutions is derived from exploration and production companies spending money to explore and develop drilling prospects in search of crude oil and natural gas. Their spending is driven by their cash flow, financial strength, and desires to return excess cash to shareholders, which is affected by trends in crude oil and natural gas commodity prices. Crude oil prices are determined by a number of factors including global supply and demand, the establishment of and compliance with production quotas by oil exporting countries, worldwide economic conditions and geopolitical factors. Crude oil and natural gas prices have historically been volatile and very difficult to predict with any degree of certainty. While current energy prices are important contributors to positive cash flow for customers, expectations about future prices and price volatility are generally more important for determining future spending levels. This volatility can lead many exploration and production companies to base their capital spending on much more conservative estimates of commodity prices. As a result, demand for drilling services and solutions is not always purely a function of the movement of commodity prices.
Credit and Capital Market Risk
Customers may finance their exploration activities through cash flow from operations, the incurrence of debt, or the issuance of equity. Any deterioration in the credit and capital markets, as experienced in the past, can make it difficult for customers to obtain funding for their capital needs. A reduction of cash flow resulting from declines in commodity prices or a reduction of available financing may result in customer credit defaults or reduced demand for our services, which could have a material adverse effect on our business, financial condition and results of operations. Similarly, we may need to access capital markets to obtain financing. Our ability to access capital markets for financing could be limited by, among other things, oil and gas prices, our existing capital structure, our credit ratings, the state of the economy, the health of the drilling and overall oil and gas industry, and the liquidity of the capital markets. Many of the factors that affect our ability to access capital markets are outside of our control. No assurance can be given that we will be able to access capital markets on terms acceptable to us when required to do so, which could have a material adverse impact on our business, financial condition and results of operations.
Further, we attempt to secure favorable prices through advanced ordering and purchasing for drilling rig components. While these materials have generally been available at acceptable prices, there is no assurance the prices will not vary significantly in the future. Any fluctuations in market conditions causing increased prices in materials and supplies could have a material adverse effect on future operating costs.
Interest Rate Risk
Our interest rate risk exposure results primarily from short‑term rates, mainly SOFR‑based, on any borrowings from the Amended Credit Facility and Term Loan Credit Agreement. At September 30, 2025, there were no outstanding borrowings under the Amended Credit Facility and $200.0 million outstanding under the Term Loan Credit Agreement. Our outstanding debt consisted of $2.1 billion (face amount) in senior unsecured notes, an unsecured term loan credit agreement and secured term loan credit agreements, and had an estimated fair value of $1.9 billion as of September 30, 2025. The $1.8 billion (face amount) in senior unsecured notes at September 30, 2025 comprised of the following: $350.0 million aggregate principal amount of 4.65 percent senior notes due 2027, $350.0 million aggregate principal amount of 4.85 percent senior notes due 2029, $550.0 million aggregate principal amount of 2.90 percent senior notes due 2031 and $550.0 million aggregate principal amount of 5.50 percent senior notes due 2034. The unsecured term loan credit agreement as September 30, 2025 consisted of $200 million due 2027. The secured term loan credit agreements at September 30, 2025 comprised of the following: $39.8 million secured term loan due 2033 and $43.1 million secured term loan due 2034.
Equity Price Risk
In October 2022, we made a $14.1 million equity investment, representing 106.0 million common shares in Tamboran Resources. In December 2023, all shares of Tamboran Resources were transferred to Tamboran Corp. in exchange for depository interests in Tamboran Corp. Depository interests, referred to as CHESS Depository Interests, each representing beneficial interests of 1/200th of a share of Tamboran Corp. common stock, are listed on the Australian Stock Exchange under the ticker symbol "TBN." Tamboran Corp. is focused on developing a natural gas resource in Australia's Beetaloo Sub-basin.
As of September 30, 2025 and 2024, we had equity securities in Tamboran Corp. with a total fair value of $26.0 million and $21.0 million, respectively. On June 4, 2024, the Company entered into a convertible note agreement with Tamboran Corp. This note was utilized to relieve Tamboran's outstanding accounts receivable balance owed to the Company, and therefore no cash was exchanged as part of the transaction. The convertible note agreement provided that the notes converted into shares of common stock of Tamboran Corp. under certain circumstances in connection with an initial public offering in which its stock was listed on the New York Stock Exchange ("NYSE") or NASDAQ Stock Exchange. On June 26, 2024, Tamboran Corp. completed an initial public offering of its common stock on the NYSE and as a result of this offering, our convertible note of $9.4 million was converted into 0.5 million common shares in Tamboran Corp.
A hypothetical 10 percent decrease in the market price for our marketable equity securities of Tamboran Corp as of September 30, 2025 would decrease the fair value by $2.6 million. These securities are subject to a wide variety and number of market‑related risks that could substantially reduce or increase the fair value of our holdings.
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At November 10, 2025, the total fair value of our remaining equity securities in Tamboran Corp. decreased to approximately $25.4 million. We continually monitor the fair value of the investments but are unable to predict future market volatility and any potential impact to the Consolidated Financial Statements.
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