What changed in this filing

/stocks — the workspaceLOADING

Item 1A. Risk Factors

2021-03-02 compared with 2020-02-21 · 493 added, 436 removed, 305 unchanged (75% of the section changed)

Risks Related to Our Business

There are numerous factors that affect our business and operating results, many of which are beyond our control.

The following is a description of significant factors that might cause our future operating results to differ materially from those currently expected.

The risks described below are not the only risks facing our Company.

Additional risks and uncertainties not specified herein, not currently known to us or currently deemed to be immaterial also may materially adversely affect our business, financial position, operating results or cash flows.

Risks Related to Chapter 11 Proceedings

We are subject to the risks and uncertainties associated with the Chapter 11 Cases.

On August 19, 2020, the Debtors filed the Chapter 11 Cases in the United States Bankruptcy Court for the Southern District of Texas.

For the duration of the Chapter 11 Cases, our operations and our ability to develop and execute the business plan, as well as our continuation as a going concern, are subject to risks and uncertainties associated with bankruptcy.

These risks include the following:

• our ability to execute, confirm and consummate a plan of reorganization as contemplated by the Amended RSA with respect to the Chapter 11 Cases;

• the high costs of bankruptcy proceedings and related fees;

• our ability to obtain sufficient financing to allow us to emerge from bankruptcy and execute our business plan post-emergence;

• our ability to maintain our relationships with our suppliers, service providers, customers, employees and other third parties;

• our ability to maintain contracts that are critical to our operations;

• our ability to execute our business plan in the current depressed commodity price environment;

• our ability to attract, motivate and retain key employees;

• the ability of third parties to seek and obtain court approval to terminate contracts and other agreements with us;

• the ability of third parties to seek and obtain court approval to convert the Chapter 11 Cases to a chapter 7 proceeding;

• the actions and decisions of our creditors and other third parties who have interests in the Chapter 11 Cases that may be inconsistent with our plans.

Delays in the Chapter 11 Cases increase the risks of us being unable to reorganize our business and emerge from bankruptcy, and also increase our costs associated with the bankruptcy process.

These risks and uncertainties could affect our business and operations in various ways.

For example, negative events or publicity associated with the Chapter 11 Cases could adversely affect our relationships with customers, suppliers, service providers, employees and other third parties, which in turn could adversely affect our operations and financial condition.

Also, pursuant to the Bankruptcy Code, we need the prior approval of the Bankruptcy Court for transactions outside the ordinary course of business, which may limit our ability to respond in a timely fashion to certain events or take advantage of certain opportunities.

We also need Bankruptcy Court confirmation of a plan of reorganization as contemplated by the Amended RSA.

Because of the risks and uncertainties associated with the Chapter 11 Cases, we cannot accurately predict or quantify the ultimate impact that events that occur during or as a result of the Chapter 11 Cases will have on our business, financial condition, results of operations and cash flows.

Even if a plan of reorganization is consummated, we will continue to face a number of risks, including those associated with our ability to reduce expenses, implement any strategic initiatives and generally maintain favorable relationships with and secure the confidence of our customers, suppliers, service providers, employees and other third parties.

Accordingly, we cannot guarantee that the proposed financial restructuring will achieve our stated goals nor can we give any assurance of our ability to continue as a going concern.

Operating under the Bankruptcy Court protection for a long period of time may harm our business.

A long period of operations under the protection of the Bankruptcy Court could have a material adverse effect on our business, financial condition, results of operations and liquidity.

A prolonged period of operating under Bankruptcy Court protection may also make it more difficult to retain management and other key personnel necessary to the success and growth of our business.

In addition, the longer the Chapter 11 Cases continue, the more likely it is that our customers and suppliers will lose confidence in our ability to reorganize our business successfully and will seek to establish alternative commercial relationships.

So long as the Chapter 11 Cases continue, we will be required to incur substantial costs for professional fees and other expenses associated with the administration of the Chapter 11 Cases.

Furthermore, we cannot predict the ultimate terms of settlement of the liabilities that will be subject to a plan of reorganization.

Even once a plan of reorganization is approved and implemented, our operating results may be adversely affected by the possible reluctance of prospective lenders and other counterparties to do business with a company that recently emerged from chapter 11 bankruptcy.

We may not be able to obtain confirmation of a plan of reorganization.

To emerge successfully from Bankruptcy Court protection as a viable entity, we must meet certain statutory requirements with respect to adequacy of disclosure with respect to a chapter 11 plan of reorganization, solicit and

obtain the requisite acceptances of such a reorganization plan and fulfill other statutory conditions for confirmation of such a plan.

However, even if a plan of reorganization as contemplated by the Amended RSA meets other requirements under the Bankruptcy Code, certain interested parties may file objections to the plan in an effort to persuade the Bankruptcy Court that we have not satisfied the confirmation requirements under section 1129 of the Bankruptcy Code.

Even if no objections are filed and the requisite acceptances of our plan are received from creditors entitled to vote on the plan, the Bankruptcy Court, which can exercise substantial discretion, may not confirm the plan of reorganization.

The precise requirements and evidentiary requirements for having a plan confirmed, notwithstanding its rejection by one or more impaired classes of claims or equity interests, depends upon a number of factors including, without limitation, the status and seniority of the claims or equity interests in the rejecting class (i.e., secured claims or unsecured claims, subordinated or senior claims).

If a plan of reorganization is not confirmed by the Bankruptcy Court, it is unclear whether we would be able to reorganize our business and what, if anything, holders of claims against us would ultimately receive with respect to their claims.

We have substantial liquidity needs and may not be able to obtain sufficient liquidity for the duration of the Chapter 11 Cases or to confirm a plan of reorganization or liquidation.

Although we have lowered our capital budget and reduced the scale of our operations significantly, our business remains capital intensive.

In addition to the cash requirements necessary to fund ongoing operations, we have incurred, and expect to continue to incur, significant professional fees and other costs in connection with the Chapter 11 Cases.

As of December 31, 2020, our total available liquidity was $825.8 million, which included $325.8 million of cash on hand and $500.0 million available under our DIP Facility.

We expect to continue using cash on hand that will further reduce this liquidity.

With the Bankruptcy Court’s authorization to use cash collateral under the DIP Credit Agreement, we believe that we will have sufficient liquidity, including cash on hand, to fund anticipated cash requirements through the Chapter 11 Cases.

As such, we expect to pay vendor obligations on a go-forward basis according to the terms of our current contracts and consistent with applicable court orders, if any, approving such payments.

However, there can be no assurance that our current liquidity will be sufficient to allow us to satisfy our obligations related to the Chapter 11 Cases or to pursue confirmation of a plan of reorganization.

We can provide no assurance that we will be able to secure additional interim financing or exit financing sufficient to meet our liquidity needs or, if sufficient funds are available, that such funds will be offered to us on acceptable terms.

As a result of the Chapter 11 Cases, our financial results may be volatile and may not reflect historical trends.

During the Chapter 11 Cases, we expect our financial results to continue to be volatile as restructuring activities and expenses, contract terminations and rejections and claims assessments significantly impact our financial results.

As a result, our historical financial performance is likely not indicative of financial performance after the date of the bankruptcy filing.

In addition, if we emerge from chapter 11, the amounts reported in subsequent periods may materially change relative to historical results, including due to revisions to our operating plans pursuant to a plan of reorganization.

We anticipate that we will adopt fresh start accounting upon our emergence from chapter 11, becoming a new entity for financial reporting purposes.

As a result, upon emergence, the Company’s assets and liabilities will generally be reported at fair value and will reconcile to the enterprise value confirmed by the Bankruptcy Court.

These fair values are expected to differ materially from the amounts reflected on our historical balance sheet.

We may be subject to claims that will not be discharged in the Chapter 11 Cases.

The Bankruptcy Code provides that the confirmation of a plan of reorganization may discharge a debtor from substantially all debts arising prior to the Petition Date.

Although the Company intends to pay pre-petition trade claims in full, with few exceptions, all claims that arose before the Petition Date (1) are subject to compromise and/or treatment under a plan of reorganization and/or (2) could be discharged in accordance with the terms of a plan of reorganization.

The Bankruptcy Code excepts certain pre-petition claims from discharge for corporate debtors, including certain debts owed to governmental entities obtained by, among other things, false

representations or actual fraud.

Any claims not ultimately discharged through a plan of reorganization could be asserted against the reorganized entities and may have an adverse effect on their financial condition and results of operations on a post-reorganization basis.

Our actual financial results may vary significantly from the projections filed with the Bankruptcy Court.

In connection with the plan of reorganization process, we were required to prepare projected financial information to demonstrate to the Bankruptcy Court the feasibility of the restructuring plan and our ability to continue operations upon emergence from bankruptcy.

At the time they were last filed with the Bankruptcy Court on December 30, 2020, the projections reflected numerous assumptions concerning anticipated future performance and prevailing and anticipated market and economic conditions that were and continue to be beyond our control and that may not materialize.

Further, to the extent we issue new guidance, such projections will supersede any prior guidance.

Projections, in any event, are inherently subject to uncertainties and to a wide variety of significant business, economic and competitive risks.

Our actual results will vary from those contemplated by our projections and the variations may be material.

The pursuit of the Chapter 11 Cases has consumed and will continue to consume a substantial portion of the time and attention of our management, which may have an adverse effect on our business and results of operations, and we may face increased levels of employee attrition.

While the Chapter 11 Cases continue, our management will be required to spend a significant amount of time and effort focusing on the Chapter 11 Cases instead of focusing exclusively on our business operations.

This diversion of attention may have a material adverse effect on the conduct of our business, and, as a result, our financial condition and results of operations, particularly if the Chapter 11 Cases are protracted.

During the duration of the Chapter 11 Cases, our employees will face considerable distraction and uncertainty and we may experience increased levels of employee attrition.

A loss of key personnel or material erosion of employee morale could have a material adverse effect on our ability to meet customer expectations, thereby adversely affecting our business and results of operations.

The failure to retain or attract members of our management team and other key personnel could impair our ability to execute our strategy and implement operational initiatives, thereby having a material adverse effect on our financial condition and results of operations.

Trading in our securities during the pendency of the Chapter 11 Cases is highly speculative and poses substantial risks.

It is possible that our Class A ordinary shares will be cancelled pursuant to the plan of reorganization and holders of any such ordinary shares will receive only such distributions as set forth in the plan of reorganization, which may result in such holders being unable to recover their investments.

A significant amount of our indebtedness is senior to the Class A ordinary shares in our capital structure.

It is unclear at this stage of the Chapter 11 Cases if any plan of reorganization would allow for distributions with respect to our Class A ordinary shares and other outstanding equity interests without the consent of the senior debt holders.

It is possible that these equity interests may be cancelled and extinguished upon the approval of the Bankruptcy Court and the holders thereof would not be entitled to receive, and would not receive or retain, any property or interest in property on account of such equity interests.

In the event of a cancellation of these equity interests, amounts invested by such holders in our outstanding equity securities will not be recoverable.

Under the current plan of reorganization, holders of our Class A ordinary shares may be entitled to receive their pro rata share of 7-year warrants to purchase up to 7% of New Equity (subject to dilution).

However, if our plan of reorganization is not approved, our currently outstanding Class A ordinary shares may have no value.

Trading prices for our Class A ordinary shares are very volatile and may bear little or no relationship to the actual recovery, if any, by the holders of such securities in the Chapter 11 Cases.

Accordingly, we urge that extreme caution be exercised with respect to existing and future investments in our equity securities and any of our other securities.

In certain instances, a chapter 11 case may be converted to a case under chapter 7 of the Bankruptcy Code.

Upon a showing of cause, the Bankruptcy Court may convert the Chapter 11 Cases to cases under chapter 7

of the Bankruptcy Code.

In such event, a chapter 7 trustee would be appointed or elected to liquidate our assets and the assets of our subsidiaries for distribution in accordance with the priorities established by the Bankruptcy Code.

We believe that liquidation under chapter 7 would result in significantly smaller distributions being made to our creditors than those provided for in a plan of reorganization because of (1) the likelihood that the assets would have to be sold or otherwise disposed of in a distressed fashion over a short period of time rather than in a controlled manner and as a going concern, (2) additional administrative expenses involved in the appointment of a chapter 7 trustee, and (3) additional expenses and claims, some of which would be entitled to priority, that would be generated during the liquidation and from the rejection of leases and other executory contracts in connection with a cessation of operations.

Any plan of reorganization that we may implement will be based in large part upon assumptions and analyses developed by us.

If these assumptions and analyses prove to be incorrect, our plan may be unsuccessful in its execution.

Any plan of reorganization that we may implement could affect both our capital structure and the ownership, structure and operation of our businesses and will reflect assumptions and analyses based on our experience and perception of historical trends, current conditions and expected future developments, as well as other factors that we consider appropriate under the circumstances.

In addition, any plan of reorganization will rely upon financial projections, including with respect to revenues, capital expenditures, debt service and cash flow.

Financial forecasts are necessarily speculative, and it is likely that one or more of the assumptions and estimates that are the basis of these financial forecasts will not be accurate.

Whether actual future results and developments will be consistent with our expectations and assumptions depends on a number of factors, including but not limited to (1) our ability to substantially change our capital structure, (2) our ability to obtain adequate liquidity and financing sources, (3) our ability to maintain customers’ confidence in our viability as a continuing entity and to attract and retain sufficient business from them, (4) our ability to retain key employees and (5) the overall strength and stability of general economic conditions of the financial and oil and gas industries, both in the U.S.

and in global markets.

The failure of any of these factors could materially adversely affect the successful reorganization of our businesses.

Consequently, there can be no assurance that the results or developments contemplated by any plan of reorganization we may implement will occur or, even if they do occur, that they will have the anticipated effects on us and our subsidiaries or our businesses or operations.

The failure of any such results or developments to materialize as anticipated could materially adversely affect the successful execution of any plan of reorganization.

We may not be able to achieve our stated goals and continue as a going concern under a plan of reorganization.

Even if a plan of reorganization is consummated, we will continue to face a number of risks.

For example, improvements in demand for offshore drilling services and/or reductions in supply will be necessary before meaningful increases in utilization and day rates are realized.

Accordingly, we cannot guarantee that a plan of reorganization will achieve our stated goals.

Furthermore, even if our debts are reduced or discharged through such plan, we may need to raise additional funds through public or private debt or equity financing or other means to fund our business after the completion of the Chapter 11 Cases.

Our access to additional financing is, and for the foreseeable future will likely continue to be, extremely limited, if it is available at all.

Therefore, adequate funds may not be available when needed or may not be available on favorable terms, if they are available at all.

Our ability to continue as a going concern is dependent upon our ability to raise additional capital.

As a result, we cannot give any assurance of our ability to continue as a going concern, even if a chapter 11 plan of reorganization is confirmed.

Our ability to use our NOL carryforwards may be limited by changes in ownership due to the Chapter 11 Cases.

As of December 31, 2020, we had deferred tax assets of $2.3 billion relating to $9.7 billion of NOL carryforwards, $171.2 million for U.S.

foreign tax credits (“FTCs”) and $221.2 million for U.S.

interest limitation carryforwards, which can be used to reduce our income taxes payable in future years.

carryforwards, which were generated in various jurisdictions worldwide, include $9.5 billion that do not expire and $223.0 million that will expire, if not utilized, between 2021 and 2040.

Deferred tax assets for NOL carryforwards at December 31, 2020 include $1.4 billion and $687.3 million pertaining to NOL carryforwards in Luxembourg and the United States, respectively.

FTCs expire between 2021 and 2028.

The interest limitation carryforwards do not expire.

Due to the uncertainty of realization, we have a $2.7 billion valuation allowance on deferred taxes relating to NOL carryforwards, U.S.

FTCs and interest limitation carryforwards.

Under Section 382 of the Internal Revenue Code (“IRC”), changes in our ownership, in certain circumstances, will limit the amount of U.S.

NOL carryforwards, FTCs and interest limitation carryforwards that can be utilized annually in the future to offset U.S.

taxable income.

Calculations pursuant to Section 382 of the IRC can be very complicated and no assurance can be given relative to our ability to utilize our U.S.

NOL carryforwards, FTCs and interest limitation carryforwards in the future.

If we are limited in our ability to use our U.S.

NOL carryforwards, FTCs and interest limitation carryforwards in future years in which we have taxable income, we will pay more taxes than if we were able to utilize them fully.

We may experience ownership changes in the future as a result of subsequent shifts in our stock ownership that we cannot predict or control that could result in further limitations being placed on our ability to utilize our U.S.

NOL carryforwards, FTCs and interest limitation carryforwards.

Risks Related to Our Business, Operations and Market Conditions

The COVID-19 pandemic and recent developments in the oil and gas industry has, and could continue to, adversely impact our financial condition and results of operations.

The COVID-19 pandemic and related public health measures implemented by governments worldwide have negatively impacted the global macroeconomic environment and resulted in a sharp decline in global oil demand and prices.

As of February 2021, crude oil prices have recovered from the historic lows seen in the first half of 2020 and have returned to 2019 prices.

However, our customers have generally lowered their capital expenditure plans, in many cases significantly, in light of revised pricing expectations.

To date, there have been various impacts from the pandemic and the resultant drop in oil prices, including contract cancellations and the cancellation of drilling programs by operators, contract concessions, stacking rigs, inability to change crews due to travel restrictions, and workforce reductions.

Our operations and business may be subject to further disruptions as a result of the spread of coronavirus among our workforce, the extension or imposition of further public health measures affecting our supply chain and logistics, and the impact of the pandemic on key customers, suppliers, and other counterparties.

Oil prices are expected to continue to be volatile as a result of the near-term production instability, ongoing COVID-19 outbreaks, the implementation of vaccination programs and the related impact on overall economic activity, changes in oil inventories, industry demand and global and national economic performance.

The success of our business largely depends on the level of activity in the oil and gas industry, which can be significantly affected by volatile oil and natural gas prices.

3 unchanged sentences

The oversupply of drilling rigs will be exacerbated by the entry of newbuild rigs into the market.

Oil and natural gas prices have historically been volatile, and have declined significantly from prices in excess of $100

since mid-2014 causing operators to reduce capital spending and cancel or defer existing programs, substantially reducing the opportunities for new drilling contracts.

More recently, oil prices have increased meaningfully from the decade lows reached during 2016, with Brent crude averaging nearly $55 per barrel in 2017 and more than $70 per barrel through most of 2018, leading to signs of a gradual recovery in demand for offshore drilling services.

However, macroeconomic and geopolitical headwinds triggered a decline in Brent crude prices in the fourth quarter of 2018, resulting in a decline in prices from more than $85 per barrel to approximately $50 per barrel at year-end.

Oil prices have experienced a gradual recovery from this decline in 2019 with Brent crude prices averaging approximately $64 per barrel.

Commodity prices have not improved to a level that supports increased rig demand sufficient to absorb existing rig supply and generate meaningful increases in day rates.

Oil and natural gas prices have historically been volatile, and have declined significantly from prices in excess of $100 since mid-2014, causing operators to reduce capital spending and cancel or defer existing programs, substantially reducing the opportunities for new drilling contracts.

Brent crude averaged nearly $42 per barrel in 2020 with a year-end price of $51.

Commodity prices in 2021 have not improved to a level that supports increased rig demand sufficient to absorb existing rig supply and generate meaningful increases in day rates.

We expect these trends to continue as long as commodity prices and rig supply remain at current levels.

The lack of a meaningful recovery of oil and natural gas prices or further price reductions or volatility in prices may cause our customers to maintain historically low levels or further reduce their overall level of activity, in which case demand for our services may further decline and revenues may continue to be adversely affected through lower rig utilization and/or lower day rates.

The lack of a meaningful recovery of oil and natural gas prices or further price reductions or volatility in prices may cause our customers to maintain historically low capital spending levels or further reduce their overall level of activity, in

which case demand for our services may further decline and revenues may continue to be adversely affected through lower rig utilization and/or lower day rates.

Numerous factors may affect oil and natural gas prices and the level of demand for our services, including:

• regional and global economic conditions and changes therein,

• COVID-19 and related public health measures implemented by governments worldwide and the occurrence or threat of other epidemic or pandemic diseases and any government response to such occurrence or threat,

• oil and natural gas supply and demand,

6 unchanged sentences

• the rate of discovery of new oil and gas reserves and the rate of decline of existing oil and gas reserves,

laws and government regulations that limit, restrict or prohibit exploration and development of oil and natural gas in various jurisdictions, or materially increase the cost of such exploration and development,

• laws and government regulations that limit, restrict or prohibit exploration and development of oil and natural gas in various jurisdictions, or materially increase the cost of such exploration and development (such as the current moratorium on oil and gas leasing and permitting in federal lands and waters),

• the development and exploitation of alternative fuels or energy sources and increased demand for electric-powered vehicles,

• disruption to exploration and development activities due to hurricanes and other severe weather conditions and the risk thereof,

natural disasters or incidents resulting from operating hazards inherent in offshore drilling, such as oil spills,

the occurrence or threat of epidemic or pandemic diseases and any government response to such occurrence or threat, and

• natural disasters or incidents resulting from operating hazards inherent in offshore drilling, such as oil spills, and

• the worldwide military or political environment, including the global macroeconomic effects of trade disputes and increased tariffs and sanctions and uncertainty or instability resulting from an escalation or additional outbreak of armed hostilities or other crises in oil or natural gas producing areas of the Middle East or geographic areas in which we operate, or acts of terrorism.

Despite significant declines in capital spending and cancelled or deferred drilling programs by many operators since 2014, oil and gas production has not yet been reduced by amounts sufficient to result in a rebound in pricing to levels seen prior to the current downturn, and we may not see sufficient supply reductions or a resulting rebound in

pricing for an extended period of time.

Despite significant declines in capital spending and cancelled or deferred drilling programs by many operators since 2014, oil and gas production has not yet been reduced by amounts sufficient to result in a rebound in pricing to levels seen in 2014, and we may not see sufficient supply reductions or a resulting rebound in pricing for an extended period of time.

Further, the agreements of OPEC and certain non-OPEC countries to freeze and/or cut production may not be fully realized.

The lack of actual production cuts or freezes, or the perceived risk that OPEC countries may not comply with such agreements, may result in depressed commodity prices for an extended period of time.

Higher commodity prices may not necessarily translate into increased activity, and even during periods of high commodity prices, customers may cancel or curtail their drilling programs, or reduce their levels of capital expenditures for exploration and production for a variety of reasons, including their lack of success in exploration efforts.

The lack of actual production cuts or freezes, or the perceived risk that OPEC

countries may not comply with such agreements, may result in depressed commodity prices for an extended period of time.

Higher commodity prices may not necessarily translate into increased activity, and even during periods of high commodity prices, customers may cancel or curtail their drilling programs, or reduce their levels of capital expenditure for exploration and production for a variety of reasons, including their expectations for future oil prices and their lack of success in exploration efforts.

Advances in onshore exploration and development technologies, particularly with respect to onshore shale, could also result in our customers allocating more of their capital expenditure budgets to onshore exploration and production activities and less to offshore activities.

These factors could cause our revenues and profits to decline further, as a result of declines in utilization and day rates, and limit our future growth prospects.

Any significant decline in day rates or utilization of our rigs, particularly our high-specification floaters, could materially reduce our revenues and profitability.

Any significant decline in day rates or utilization of our rigs could materially reduce our revenues and profitability.

In addition, these risks could increase instability in the financial and insurance markets and make it more difficult for us to access capital and obtain insurance coverage that we consider adequate or are otherwise required by our contracts.

11 unchanged sentences

Any further decline in demand for drilling rigs or a continued oversupply of drilling rigs could adversely affect our financial position, operating results or cash flows.

Our business will be adversely affected if we are unable to secure contracts on economically favorable terms or if option periods in existing contracts that we expect to be exercised are not so exercised.

Our business will be adversely affected if we are unable to secure contracts on economically favorable terms or if option periods in existing contracts are not exercised as expected.

Our ability to renew expiring contracts or obtain new contracts and the terms of any such contracts will depend on market conditions.

Our customers’ decisions to exercise options resulting in additional work for the rig under contract also depend on market conditions.

Our customers’ decisions to exercise option periods resulting in additional work for the rig under contract also depend on market conditions.

We may be unable to renew our expiring contracts, including contracts expiring for failure by the customer to exercise option periods, or obtain new contracts for the rigs under contracts that have expired or have been terminated, and the day rates under any new contracts or any renegotiated contracts may be substantially below the existing day rates, which could adversely affect our revenues and profitability.

In addition, if customers do not exercise option periods under contracts that we currently expect to be exercised, we may face longer downtime associated with the related rig, as we would have difficulty tendering that rig for additional work to cover the option period.

Our two rigs under construction, which are scheduled for delivery between 2021 and 2022, are currently uncontracted.

On December 30, 2020, we reached an agreement in principle to amend and assume pursuant to section 365 of the Bankruptcy Code two agreements for the construction of two new rigs, which was subsequently modified through further negotiations.

On February 26, 2021, we entered into amended agreements that extend the delivery date for both new rigs to December 31, 2023.

The two rigs under construction are currently uncontracted.

There is no assurance that we will secure drilling contracts for these rigs, or future rigs we construct or acquire, or that the drilling contracts we may be able to secure will be based upon rates and terms that will provide a reasonable rate of return on these investments.

1 unchanged sentence

We have a significant amount of debt.

Our debt levels and debt agreement restrictions may limit our liquidity and flexibility in refinancing our debt, obtaining additional financing and pursuing other business opportunities.

As of December 31, 2019 , we had $6.5 billion in total debt outstanding, representing approximately 41.2% of our total capitalization, including 6.785% senior notes due 2020 with an aggregate outstanding principal balance of $122.9 million .

As of December 31, 2019 , $ 2.6 billion outstanding principal amount of our debt had a maturity date prior to year-end 2024.

Our debt levels and debt agreement restrictions may limit our liquidity, our ability to obtain additional financing our pursuit of other business opportunities.

As of December 31, 2020, we had $7.1 billion in total debt outstanding, representing approximately 61.9% of our total capitalization.

Our current indebtedness may have several important effects on our future operations, including:

a substantial portion of our cash flows from operations will be dedicated to the payment of principal and interest,

covenants contained in our debt arrangements require us to meet certain financial tests, which may affect our flexibility in planning for, and reacting to, changes in our business and may limit our ability to dispose of assets or place restrictions on the use of proceeds from such dispositions, withstand current or future economic or industry downturns and compete with others in our industry for strategic opportunities, and

• a substantial portion of our cash flows from operations will be dedicated to the payment of principal and interest, and

• our ability to access capital markets, refinance our existing indebtedness, raise capital on favorable terms, or obtain additional financing to fund working capital requirements, capital expenditures, acquisitions, debt service requirements, execution of our business strategy and general corporate or other cash requirements may be limited.

1 unchanged sentence

For 2020 and 2019, our cash flows from operating activities of continuing operations were negative $251.7 million and $276.9 million, respectively, and we further incurred capital expenditures on continuing operations of $93.8 million and $227.0 million, respectively.

Our operating activities and capital expenditures are expected to continue to result in significant negative annual cash flow in 2020.

Meaningful recovery in drilling demand and day rates are required for annual cash flow to turn positive in 2021 and beyond.

We cannot be certain that our future cash flows will be sufficient to meet all of our debt obligations, working capital requirements and contractual commitments.

Any cash flow insufficiency would have a material adverse impact on our business, financial condition, results of operations, cash flows and liquidity and our ability to repay or refinance our debt.

Our operating activities and capital expenditures are expected to continue to result in negative annual cash flow in 2021.

Meaningful recovery in drilling demand and day rates are required for annual cash flow to turn positive.

To the extent we are unable to repay our debt and other obligations as they become due with cash on hand or from other sources, we will need to restructure or refinance all or part of our debt, sell assets, reduce capital expenditures, borrow more cash or raise equity.

1 unchanged sentence

In addition, in the event we decide to sell additional assets, we can provide no assurance as to the timing of any asset sales or the proceeds that could be realized by us from any such asset sale.

In addition, we may pursue various liability management transactions to extend our debt maturities and reduce the outstanding principal amount of our debt.

These liability management efforts may be unsuccessful or may not improve our financial position to the extent anticipated.

shares, repurchasing or redeeming certain other indebtedness which matures after the revolving credit facility, entering into mergers and other matters.

Our revolving credit facility places restrictions on us and certain of our subsidiaries with respect to incurring additional indebtedness and liens, paying dividends and other payments to shareholders, repurchasing our ordinary shares, repurchasing or redeeming certain other indebtedness which matures after the revolving credit facility, entering into mergers and other matters.

Our revolving credit facility also requires compliance with covenants to maintain specified financial and guarantee coverage ratios, including a total debt to total capitalization ratio that is less than or equal to 60%.

As of December 31, 2019 , such ratio was 41.2% .

If we incur material impairments in future periods, we may not be able to comply with such financial covenant.

In addition, these restrictions may limit our flexibility in obtaining additional financing and in pursuing various business opportunities.

Further, if for any reason we are unable to meet our debt service and repayment obligations or to comply with the payment, financial and other covenants in the agreements governing our debt, we would be in default under the terms of such agreements, which could allow our creditors under those agreements to declare all outstanding indebtedness thereunder to be due and payable (which would in turn trigger cross-acceleration or cross-default rights between the relevant agreements), the lenders under our credit facilities could terminate their commitments to extend credit, and we could be forced into bankruptcy or liquidation.

If the amounts outstanding under our credit facility or any of our other significant indebtedness were to be accelerated, we cannot assure you that our assets would be sufficient to repay in full the amounts owed to the lenders or to our other debt holders.

In addition, our access to credit and capital markets, in part, depends on the credit ratings assigned to our credit facility and our notes by independent credit rating agencies.

In recent years, we have experienced significant downgrades in our corporate credit rating and the credit rating of our senior notes.

Our access to credit and capital markets is more limited due to these downgrades and the associated weakening of our credit metrics.

Any additional actual or anticipated downgrades in our corporate credit rating or the credit rating of our notes will further limit our ability to access credit and capital markets, or to restructure or refinance our indebtedness.

Furthermore, future financings or refinancings may result in higher borrowing costs, require collateral, or contain more restrictive terms and covenants, which will further restrict our operations.

With our current credit ratings, we have no access to the commercial paper market.

Limitations on our ability to access credit and capital markets could have a material adverse impact on our financial position, operating results or cash flows.

Our customers may be unable or unwilling to fulfill their contractual commitments to us, including their obligations to pay for losses, damages or other liabilities resulting from operations under the contract.

As of December 31, 2020, our total debt to total capitalization ratio was 61.9%.

As of August 19, 2020, we have been in default under certain of our debt instruments.

Our filing of the Chapter 11 Cases accelerated our obligations under the Senior Notes (as defined below).

Additionally, events of

default under the indentures governing our Senior Notes have occurred and are continuing, including as a result of cross-defaults between such indentures.

Our customers may be unable or unwilling to fulfill their contractual commitments to us, including their obligations to pay for losses, damages or other liabilities.

Certain of our customers are subject to liquidity risk and such risk could lead them to seek to repudiate, cancel or renegotiate our drilling contracts or fail to fulfill their commitments to us under those contracts.

4 unchanged sentences

Our customers have historically assumed most of the responsibility for and indemnified us from any loss, damage or other liability resulting from pollution or contamination, including clean-up and removal and third-party damages arising from operations under the contract when the source of the pollution originates from the well or reservoir, including those resulting from blow-outs or cratering of the well.

However, we regularly are required to assume a limited amount of liability for pollution damage caused by our negligence, which liability generally has caps for ordinary negligence, with much higher caps or unlimited liability where the damage is caused by our gross negligence.

Notwithstanding a contractual indemnity from a customer, there can be no assurance that our customers will be financially able to assume their responsibility and honor their indemnity to us for such losses.

9 unchanged sentences

Furthermore, financially distressed customers may seek to negotiate reduced termination fees as part of a restructuring package.

During 2020, the offshore drilling market suffered serious negative effects in relation to the COVID-19 pandemic and a significant drop in oil and gas commodity prices.

Global economic shutdowns driven by COVID-19 served to exacerbate the reduction in world demand for oil and gas which then prompted operators to slash budgets and defer, cancel and/or renegotiate rates for existing contracts.

Drilling contracts customarily specify automatic termination or termination at the option of the customer in the event of a total loss of the drilling rig and often include provisions addressing termination rights or reduction or cessation of day rates if operations are suspended or interrupted for extended periods due to breakdown of major rig equipment, unsatisfactory performance, "force majeure" events beyond the control of either party or other specified conditions.

4 unchanged sentences

Likewise, during periods in which rig supply exceeds rig demand, competition may force us to contract our rigs at or near cash break-even rates for extended periods of time.

Since 2014 we have recorded pre-tax, non-cash losses on impairment of long-lived assets totaling $5.4 billion .

Since 2014 we have recorded pre-tax, non-cash losses on impairment of long-lived assets totaling $9.0 billion, including $3.6 billion aggregate pre-tax, non-cash impairments with respect to certain floaters, jackups and spare equipment, which we recorded during the first and second quarters of 2020.

Further asset impairments may be necessary if market conditions remain depressed for longer than we expect.

See Note 6 to our consolidated financial statements included in "Item 8.

See " N ote 7 - Property and Equipment" to our consolidated financial statements included in "Item 8.

Financial Statements and Supplementary Data" for additional information.

2 unchanged sentences

During 2020, our five largest customers accounted for 41% of our consolidated revenues in the aggregate, with our largest customer representing 11% of our consolidated revenues and a significant percentage of our operating cash flows.

Certain of our largest customers have discussed with us our financial viability to perform for the duration of the potential terms of new contracts.

Our ability to retain existing significant customers may be adversely affected by the ongoing Chapter 11 Cases and certain of our largest customers have discussed with us our financial viability to perform for the duration of the potential terms of new contracts.

Our financial position, operating results or cash flows may be materially adversely affected if any of our higher day rate contracts were terminated or renegotiated on less favorable terms or if a major customer terminates its contracts with us, fails to renew its existing contracts with us, requires renegotiation of our contracts or declines to award new contracts to us.

Our current backlog of contract drilling revenue may not be fully realized and may decline significantly in the future, which may have a material adverse effect on our financial position, operating results or cash flows.

As of December 31, 2019 , our contract backlog was approximately $2.5 billion , which represents an increase of $270.4 million to the reported backlog of $2.2 billion as of December 31, 2018 .

Our current backlog of contract drilling revenue may not be fully realized and may decline significantly in the future.

As of December 31, 2020, our contract backlog was approximately $1.2 billion, which represents a decline of $1.2 billion to the reported backlog of $2.5 billion as of December 31, 2019.

This amount reflects the remaining contractual terms multiplied by the applicable contractual day rate.

18 unchanged sentences

Our inability to realize the full amount of our contract backlog may have a material adverse effect on our financial position, operating results or cash flows.

We may not realize the expected benefits of the ARO joint venture and it may introduce additional risks to our business.

In November 2016, Rowan and Saudi Aramco announced plans to form a 50/50 joint venture with Rowan and Saudi Aramco each selling existing drilling units and contributing capital as the foundation of the new company.

The new entity, ARO, commenced operations on October 17, 2017, and is expected to add up to 20 newbuild jackup rigs to its fleet over an approximate 10 year period.

We may not realize the expected benefits of the ARO joint venture, which depends on a single customer for its income and accounts receivable, and our inability to realize such benefits may introduce additional risks to our business.

In November 2016, Rowan and Saudi Aramco announced plans to form a 50/50 joint venture with Rowan and Saudi Aramco each selling existing drilling rigs and contributing capital as the foundation of the new company.

The new entity, Saudi Aramco Rowan Offshore Drilling Company (ARO) commenced operations on October 17, 2017, and is expected to add up to 20 newbuild jackup rigs to its fleet over an approximate 10 year period.

In January 2020, ARO ordered the first two newbuild jackups for delivery scheduled in 2022.

There can be no assurance that the new jackup rigs will begin operations as anticipated or we will realize the expected return on our investment.

We may also experience difficulty jointly managing the venture, and integrating our existing employees, business systems, technologies and services with those of Saudi Aramco in order to operate the joint venture efficiently.

We may also experience difficulty jointly managing the venture.

Further, in the event ARO has insufficient cash from operations or is unable to obtain third party financing, we may periodically be required to make additional capital contributions to ARO, up to a maximum aggregate contribution of $1.25 billion.

Any required capital contributions we make will

negatively impact our liquidity position and financial condition.

Any required capital contributions we make will negatively impact our liquidity position and financial condition.

In 2017 and 2018, Rowan issued 10-year shareholder notes receivables to ARO, which are governed by the laws of Saudi Arabia, earn interest at LIBOR plus two percent and mature during 2027 and 2028.

In the event that ARO is unable to repay these notes when they become due, we would require the prior consent of our joint venture partner to enforce ARO’s payment obligations.

The notes receivable may be reduced by future Company obligations to the joint venture.

In the event of a dispute with ARO over the repayment of the long-term notes receivable, our ability to enforce the payment obligations of ARO or to exercise other remedies are subject to several significant limitations, including that our ability to accelerate outstanding amounts under the long-term notes receivable is subject to the consent of Saudi Aramco and that the long-term notes receivable are governed by the laws of Saudi Arabia and we are limited to the remedies available under Saudi law.

As a result of these risks, it may take longer than expected for us to realize the expected returns from ARO or such returns may ultimately be less than anticipated.

Additionally, if we are unable to make any required contributions, our ownership in ARO could be diluted which could hinder our ability to effectively manage ARO and adversely impact our operating results or financial condition.

ARO’s income and accounts receivable are concentrated with one customer.

The loss of this customer, or a substantial decrease in demand by this customer for ARO’s services, would have a material adverse effect on ARO’s business, results of operations and financial condition, which could adversely impact our operating results or financial condition.

ARO, as a provider of offshore drilling services, faces many of the same risks as we face.

3 unchanged sentences

Additionally, in order to establish or preserve our relationship with our joint venture partner we may agree to risks and contributions of resources that are proportionately greater than the returns we could receive, which could reduce our income and return on our investment in ARO compared to what we may traditionally require in other areas of our business.

We have taken, and continue to take, cost-reduction actions.

Our cost-reduction initiatives may not be successful.

We have announced that we are targeting significant synergies and cost savings in connection with the Rowan Transaction.

We also have announced that we are implementing additional initiatives targeting significant additional operating cost savings.

As we implement these synergy and cost-saving initiatives, we may not realize anticipated savings or other benefits from one or more of the initiatives in the amounts or within the time periods we expect.

We have taken, and continue to take, cost-reduction actions, which may not be successful.

After announcing significant synergy targets and cost savings in connection with the Rowan Transaction, we are implementing these and additional cost savings opportunities.

A s we implement these synergy and cost-saving initiatives, we may not realize anticipated savings or other benefits from one or more of the initiatives in the amounts or within the time periods we expect.

The cost-reduction actions could negatively impact or disrupt our operations.

The impact of these cost-reduction actions on our operations may be influenced by many factors, including declines in employee morale and the potential inability to meet operational targets due to our inability to retain or recruit key employees.

Additionally, the cost-reductions actions could lead to the deterioration or failure of our operational and financial controls due to an inability to properly control and manage change, employee attrition, financial and operation system conversion and other factors that could adversely impact our business during the implementation or respective cost-reduction initiatives.

Additionally, the cost-reduction actions could lead to the deterioration or failure of our operational and financial controls due to an inability to properly control and manage change, employee attrition, financial and operating system conversion and other factors that could adversely impact our business during the implementation or respective cost-reduction initiatives.

If we experience any of these circumstances or otherwise fail to realize the anticipated savings or benefits from our synergy and cost-saving initiatives, our financial condition, results of operations and cash flows could be materially and adversely affected.

7 unchanged sentences

We also maintain insurance for personal injuries, damage to or loss of equipment and other insurance coverage for various business risks.

We generally identify the operational hazards for which we will procure insurance coverage based on the likelihood of loss, the potential magnitude of loss, the cost of coverage, the requirements of our customer contracts

and applicable legal requirements.

Although we maintain what we believe to be an appropriate level of insurance covering hazards and risks we currently encounter during our operations, no assurance can be given that we will be able to obtain insurance against all potential risks and hazards, or that we will be able to maintain the same levels and types of coverage that we have maintained in the past.

Our financial leverage and negative cash flow could cause insurance companies to increase our premiums and deductibles or limit our coverage amounts.

As a result of climate change activism or increased costs to insurance companies due to regulatory, geopolitical or other developments, insurance companies that have historically participated in underwriting energy-related risks may discontinue that practice, may reduce the insurance capacity they are willing to offer or demand significantly higher premiums or deductible periods to cover these risks.

Additionally, a significant number of energy-related insurance claims may increase insurance premiums to energy companies.

Furthermore, our insurance carriers may interpret our insurance policies such that they do not cover losses for all of our claims.

Our insurance policies may also have exclusions of coverage for some losses.

Uninsured exposures may include radiation hazards, certain loss or damage to property onboard our rigs and losses relating to shore-based terrorist acts or strikes.

Uninsured exposures may include radiation hazards, certain loss or damage to property onboard our rigs and losses relating to terrorist acts or strikes.

If we are unable to obtain or maintain adequate insurance at rates and with deductibles or retention amounts that we consider commercially reasonable, we may choose to forgo insurance coverage and retain the associated risk of loss or damage.

1 unchanged sentence

The potential for U.S.

Gulf of Mexico hurricane related windstorm damage or liabilities could result in uninsured losses and may cause us to alter our operating procedures during hurricane season, which could adversely affect our business.

Certain areas in and near the U.S.

Gulf of Mexico experience hurricanes and other extreme weather conditions on a relatively frequent basis.

Gulf of Mexico hurricane related windstorm damage or liabilities could result in uninsured losses and may cause us to alter our operating procedures during hurricane season.

Certain areas of the world such as the U.S.

Gulf of Mexico experience hurricanes or similar extreme weather conditions on a relatively frequent basis.

Some of our drilling rigs in the U.S.

Gulf of Mexico are located in areas that could cause them to be susceptible to damage and/or total loss by these storms, and we have a larger concentration of jackup rigs in the U.S.

Gulf of Mexico are located in areas that could cause them to be susceptible to damage and/or total loss by these storms, and we have a larger concentration of jack-up rigs in the U.S.

Gulf of Mexico than most of our competitors.

We currently have four jackup rigs and eight floaters in the U.S.

Gulf of Mexico.

We had four jackup rigs and four floaters in the U.S.

Gulf of Mexico as of December 31, 2020.

Damage caused by high winds and turbulent seas could result in rig loss or damage, termination of drilling contracts for lost or severely damaged rigs or curtailment of operations on damaged drilling rigs with reduced or suspended day rates for significant periods of time until the damage can be repaired.

9 unchanged sentences

It is likely that the tight insurance market for windstorm damage, liabilities and removal of wreckage and debris will continue into the foreseeable future.

We do not purchase windstorm insurance for hull and machinery losses to our floaters arising from windstorm damage in the U.S.

We have not purchased windstorm insurance for hull and machinery losses to our floaters arising from windstorm damage in the U.S.

Gulf of Mexico due to the significant premium, high deductible and limited coverage for windstorm damage.

We opted out of windstorm insurance for our jackups in the U.S.

Gulf of Mexico during 2009 and have not

since renewed that insurance.

We believe it is no longer customary for drilling contractors with similar size and fleet composition to purchase windstorm insurance for rigs in the U.S.

Gulf of Mexico for the aforementioned reasons.

Accordingly, we have retained the risk of loss or damage for our four jackups and eight floaters arising from windstorm damage in the U.S.

Accordingly, we have retained the risk of loss or damage for our jackups and floaters arising from windstorm damage in the U.S.

Gulf of Mexico.

We have established operational procedures designed to mitigate risk to our jackup rigs in the U.S.

We have established operational procedures designed to mitigate risk to our jackups in the U.S.

Gulf of Mexico during hurricane season, and these procedures may, on occasion, result in a decision to decline to operate on a customer-designated location during hurricane season notwithstanding that the location, water depth and other standard operating conditions are within a rig's normal operating range.

Our procedures and the associated regulatory requirements addressing MODU operations in the U.S.

Gulf of Mexico during hurricane season, coupled with our decision to retain (self-insure) certain windstorm-related risks, may result in a significant reduction in the utilization of our jackup rigs in the U.S.

Our procedures and the associated regulatory requirements addressing drilling rig operations in the U.S.

Gulf of Mexico.

1 unchanged sentence

Gulf of Mexico tropical storms or hurricanes may have a material adverse effect on our financial position, operating results or cash flows if we sustain significant uninsured or underinsured losses or liabilities as a result of these storms or hurricanes.

operations involve additional risks not typically associated with U.S.

Revenues from non-U.S.

operations were 85% , 87% and 92% of our total revenues during 2019, 2018 and 2017 , respectively.

operations and shipyard rig construction and enhancement projects are subject to political, economic and other uncertainties, including:

terrorist acts, war and civil disturbances,

expropriation, nationalization, deprivation or confiscation of our equipment or our customer's property,

repudiation or nationalization of contracts,

assaults on property or personnel,

piracy, kidnapping and extortion demands,

significant governmental influence over many aspects of local economies and customers,

unexpected changes in law and regulatory requirements, including changes in interpretation or enforcement of existing laws,

work stoppages, often due to strikes over which we have little or no control,

complications associated with repairing and replacing equipment in remote locations,

limitations on insurance coverage, such as war risk coverage, in certain areas,

imposition of trade barriers,

wage and price controls,

import-export quotas,

exchange restrictions,

currency fluctuations,

changes in monetary policies,

uncertainty or instability resulting from hostilities or other crises in the Middle East, West Africa, Latin America or other geographic areas in which we operate,

changes in the manner or rate of taxation,

limitations on our ability to recover amounts due,

increased risk of government and vendor/supplier corruption,

increased local content requirements,

the occurrence or threat of epidemic or pandemic diseases and any government response to such occurrence or threat,

changes in political conditions, and

other forms of government regulation and economic conditions that are beyond our control.

We historically have maintained insurance coverage and obtained contractual indemnities that protect us from some, but not all, of the risks associated with our non-U.S.

operations such as nationalization, deprivation, expropriation, confiscation, political and war risks.

However, there can be no assurance that any particular type of contractual or insurance protection will be available in the future or that we will be able to purchase our desired level of insurance coverage at commercially feasible rates.

Moreover, we may initiate a self-insurance program through one or more captive insurance subsidiaries.

In circumstances where we have insurance protection for some or all of the risks sometimes associated with non-U.S.

operations, such insurance may be subject to cancellation on short notice, and it is unlikely that we would be able to remove our rig or rigs from the affected area within the notice period.

Accordingly, a significant event for which we are uninsured, underinsured or self-insured, or for which we have not received an enforceable contractual indemnity from a customer, could cause a material adverse effect on our financial position, operating results or cash flows.

We are subject to various tax laws and regulations in substantially all countries in which we operate or have a legal presence.

We evaluate applicable tax laws and employ various business structures and operating strategies to obtain the optimal level of taxation on our revenues, income, assets and personnel.

Actions by tax authorities that impact our business structures and operating strategies, such as changes to tax treaties, laws and regulations, or the interpretation or repeal of any of the foregoing or changes in the administrative practices and precedents of tax authorities, adverse rulings in connection with audits or otherwise, or other challenges may substantially increase our tax expense.

As required by law, we file periodic tax returns that are subject to review and examination by various revenue agencies within the jurisdictions in which we operate.

During 2019, we received income tax assessments totaling approximately €142.0 million (approximately $159.0 million converted using the current period-end exchange rates) and A$101 million (approximately $70.9 million converted at current period-end exchange rates) from taxing authorities in Luxembourg and Australia, respectively.

See Note 12 to our consolidated financial statements included in "Item 8.

Financial Statements and Supplementary Data" for information on income taxes.

During the third quarter of 2019, we made a A$42 million payment (approximately $29 million at then-current exchange rates) to the Australian tax authorities to litigate the assessment.

We are also contesting the Luxembourg tax assessments.

We may make a payment to the Luxembourg tax authorities in advance of the final resolution of these

Although the outcome of such assessments cannot be predicted with certainty, unfavorable outcomes could have a material adverse effect on our liquidity.

operations also face the risk of fluctuating currency values, which may impact our revenues, operating costs and capital expenditures.

We currently conduct contract drilling operations in certain countries that have experienced substantial fluctuations in the value of their currency compared to the U.S.

In addition, some of the countries in which we operate have occasionally enacted exchange controls.

Generally, we have contractually mitigated these risks by invoicing and receiving payment in U.S.

dollars (our functional currency) or freely convertible currency and, to the extent possible, by limiting our acceptance of foreign currency to amounts which approximate our expenditure requirements in such currencies.

However, not all of our contracts contain these terms and there is no assurance that our contracts will contain such terms in the future.

A portion of the costs and expenditures incurred by our non-U.S.

operations, including certain capital expenditures, are settled in local currencies, exposing us to risks associated with fluctuation in the value of these currencies relative to the U.S.

We use foreign currency forward contracts to reduce this exposure in certain cases.

However, a relative weakening in the value of the U.S.

dollar in relation to the local currencies in these countries may increase our costs and expenditures.

operations are also subject to various laws and regulations in countries in which we operate, including laws and regulations relating to the operation of drilling rigs and the requirements for equipment.

We may be required to make significant capital expenditures to operate in such countries, which may not be reimbursed by our customers.

Governments in some countries have become increasingly active in regulating and controlling the ownership of oil, natural gas and mineral concessions and companies holding concessions, the exploration of oil and natural gas and other aspects of the oil and gas industry in their countries.

In some areas of the world, government activity has adversely affected the amount of exploration and development work performed by major international oil companies and may continue to do so.

Moreover, certain countries accord preferential treatment to local contractors or joint ventures or impose specific quotas for local goods and services, which can increase our operational costs and place us at a competitive disadvantage.

There can be no assurance that such laws and regulations or activities will not have a material adverse effect on our future operations.

The shipment of goods, services and technology across international borders subjects us to extensive trade laws and regulations.

Our import activities are governed by specific customs laws and regulations in each of the countries where we operate.

Moreover, many countries, including the United States, control the export and re-export of certain goods, services and technology and impose related export recordkeeping and reporting obligations.

Governments also may impose express or de facto economic sanctions against certain countries, persons and other entities that may restrict or prohibit transactions involving such countries, persons and entities.

The laws and regulations concerning import activity, export recordkeeping and reporting, export control and economic sanctions are complex and constantly changing.

These laws and regulations may be enacted, amended, enforced or interpreted in a manner materially impacting our operations.

Shipments can be delayed and denied export or entry for a variety of reasons, some of which are outside our control and some of which may result from failure to comply with existing legal and regulatory regimes.

Shipping delays or denials could cause unscheduled operational downtime, reduced day rates during such downtime and contract cancellations.

Any failure to comply with applicable legal and regulatory trading obligations also could result in criminal and civil penalties and sanctions, such as fines, imprisonment, exclusion from government contracts, seizure of shipments and loss of import and export privileges.

Our employees, contractors and agents may take actions in violation of our policies and procedures designed to promote compliance with the laws of the jurisdictions in which we operate.

Any such violation could have a material adverse effect on our financial position, operating results or cash flows.

We may not achieve the intended results from the Rowan Transaction, and we may not be able to successfully integrate our operations after the Rowan Transaction.

Failure to successfully integrate Rowan may adversely affect our future results, and consequently, the value of our shares.

We consummated the Rowan Transaction with the expectation that it would result in various benefits, including, among others, expanding our geographic presence and customer base and creating synergies, including $165 million of merger synergies and at least $100 million of other operating cost savings.

We closed the Rowan Transaction on April 11, 2019;

however, achieving the anticipated benefits of the Rowan Transaction is subject to a number of uncertainties, including whether the Rowan business can be integrated in an efficient and effective manner.

While we have successfully merged companies into our operations in the past, the integration process could take longer than anticipated and could result in the loss of valuable employees, the disruption of our ongoing business, processes and systems or inconsistencies in standards, controls, procedures, practices, policies and compensation arrangements, any of which could adversely affect our ability to achieve the anticipated benefits of the Rowan Transaction.

Our combined operations could be adversely affected by issues attributable to Rowan’s historical operations that arose or are based on events or actions that occurred prior to the completion of the Rowan Transaction.

In addition, integrating Rowan’s employees and operations will require the time and attention of management, which may negatively impact our business.

Events outside of our control, including changes in regulation and laws, could adversely affect our ability to realize the expected benefits, including merger synergies and other cost savings, from the Rowan Transaction.

The results of the U.K.'s referendum on withdrawal from the E.U.

may have a negative effect on economic conditions, financial markets and our business.

In June 2016, a referendum was held in the U.K.

which resulted in a majority voting in favor of the U.K.

withdrawing from the E.U.

(commonly referred to as “Brexit”).

Pursuant to legislation approved by the U.K.

Parliament and the E.U.

Parliament in January 2020, the U.K.

withdrew from the E.U.

with effect from 11 p.m.

(GMT) on January 31, 2020 on the terms of a withdrawal agreement agreed between the U.K.

in October 2019 (the “Withdrawal Agreement”).

The Withdrawal Agreement provides that the U.K.’s withdrawal is followed by a “transition period”, during which, in summary, the U.K.

is not a member of the E.U.

but most E.U.

rules and regulations continue to apply to the U.K.

During the transition period, the U.K.

will seek to negotiate the terms of a long-term trading relationship between the U.K.

based on a “Political Declaration” agreed between the U.K.

in October 2019.

The transition period provided for in the Withdrawal Agreement will expire on December 31, 2020 (unless both the U.K.

agree to extend the period of transition by one or two years).

The political negotiation surrounding the terms of the U.K.’s withdrawal from the E.U.

has created significant uncertainty about the future relationship between the U.K.

and the E.U., including with respect to the laws and regulations that will apply.

This is because, once the “transition period” expires then, subject to the terms of any long-term trading relationship agreed between the U.K.

and the E.U., the U.K.

will determine which E.U.-derived laws to replace or replicate.

The U.K.’s withdrawal from the E.U.

has also given rise to calls for the governments of other E.U.

member states to consider withdrawal, while the U.K.’s withdrawal negotiation process has increased the risk of the possibility of a further referendum concerning Scotland’s independence from the rest of the U.K.

If no long-term trading relationship is agreed between the U.K.

by the end of the transition period provided for in the Withdrawal Agreement, the U.K.’s membership of the E.U.

could ultimately terminate under a so-called “hard Brexit.” Under this scenario, there could be increased costs from the imposition of tariffs on trade or non-tariff barriers between the U.K.

and E.U., shipping delays because of the need for customs inspections and temporary shortages of certain goods.

Any of the foregoing might cause our U.K.

suppliers to pass along these increased costs, if realized, to us in the U.K.

In addition, trade and investment between the U.K., the E.U.

and other countries would be impacted by the fact that the U.K.

currently operates under tax and trade treaties concluded between the E.U.

and other countries.

Following a “hard Brexit”, the U.K.

would need to negotiate its own tax and trade treaties with other countries, as well as with the E.U..

Any new, or changes to existing, U.K.

tax laws could make the U.K.

a less desirable jurisdiction of incorporation for our parent company, Valaris plc.

In addition, one of our U.K.

subsidiaries owns two jackup rigs, and following a “hard Brexit,” the E.U.

might require some form of importation fee or guarantee on certain U.K.

owned rigs that operate outside U.K.

These developments, or the perception that any of them could occur, have had and may continue to have a material adverse effect on global, regional and/or national economic conditions and the stability of global financial

markets, and may significantly reduce global market liquidity and restrict the ability of key market participants to operate in certain financial markets.

Any of these factors could depress economic activity, result in changes to currency exchange rates, tariffs, treaties, taxes, import/export regulations, laws and other regulatory matters, and/or restrict our access to capital and the free movement of our employees, which could have a material adverse effect on our financial position, operating results or cash flows.

Approximately 10% of our total revenues were generated in the U.K.

for the year ended December 31, 2019.

Our drilling contracts with national oil companies may expose us to greater risks than we normally assume in drilling contracts with non-governmental customers.

We currently own and operate 13 rigs that are contracted with national oil companies.

We currently own and operate ten rigs that are contracted with national oil companies.

The terms of these contracts are often non-negotiable and may expose us to greater commercial, political and operational risks than we assume in other contracts, such as exposure to materially greater environmental liability, personal injury and other claims for damages (including consequential damages), or the risk that the contract may be terminated by our customer without cause on short-term notice, contractually or by governmental action, under certain conditions that may not provide us with an early termination payment.

We can provide no assurance that the increased risk exposure will not have an adverse impact on our future operations or that we will not increase the number of rigs contracted to national oil companies with commensurate additional contractual risks.

We do not currently pay dividends and cannot assure you that we will pay dividends or otherwise return capital to shareholders in the future.

Our indebtedness limits our ability to pay dividends and repurchase shares.

Our Board of Directors declared a $0.01 (pre-reverse stock split) quarterly cash dividend per Class A ordinary share for each quarter during 2017 and 2018 and the first quarter of 2019 .

In the second quarter of 2019, our Board of Directors determined that we will not pay a regular quarterly cash dividend.

The declaration and amount of future dividends is at the discretion of our Board of Directors and will depend on our profitability, liquidity, financial condition, market outlook, reinvestment opportunities, capital requirements, restrictions and limitations in our credit facility and other debt documents and other factors and restrictions our Board of Directors deems relevant.

Our revolving credit facility restricts payment of dividends in excess of a regular quarterly dividend of $0.01 per share and prohibits the repurchase of shares, except in certain limited circumstances.

Future agreements may have similar restrictions.

There can be no assurance that we will pay a dividend or otherwise return capital to shareholders in the future.

Legal and regulatory proceedings could adversely affect us.

We are involved in litigation, including various claims, disputes and regulatory proceedings that arise in the ordinary course of business, many of which are uninsured and relate to intellectual property, commercial, operational, employment, regulatory or other activities.

We operate in a number of countries throughout the world, including countries known to have a reputation for corruption and are subject to the U.S.

Foreign Corrupt Practices Act of 1977 (“FCPA”), the U.S.

Treasury Department's Office of Foreign Assets Control ("OFAC") regulations, the U.K.

Bribery Act ("UKBA"), other U.S.

laws and regulations governing our international operations and similar laws in other countries.

In August 2017, one of our Brazilian subsidiaries was contacted by the Office of the Attorney General for the Brazilian state of Paraná in connection with a criminal investigation procedure initiated against agents of both Samsung Heavy Industries, a shipyard in South Korea (“SHI”), and Pride International LLC ("Pride") in relation to the drilling services agreement with Petrobras for the DS-5 (the "DSA").

The Brazilian authorities requested information regarding our compliance program and the findings of our internal investigations relating to the DSA.

We cooperated with the Office of the Attorney General and provided documents in response to its request.

We cannot predict the scope or ultimate outcome of this procedure or whether any Brazilian governmental authority will open an investigation into Pride’s involvement in this matter, or if a proceeding were opened, the scope or ultimate outcome of any such investigation.

Any violation of the FCPA, OFAC regulations, the UKBA or other applicable anti-corruption laws by us, our affiliated entities or their respective officers, directors, employees and agents could in some cases provide a customer with termination rights under a contract and result in substantial fines, sanctions, civil and/or criminal penalties and curtailment of operations in certain jurisdictions and could adversely affect our financial condition, operating results, cash flows or the availability of funds under our revolving credit facility.

Further, we may incur significant costs and consume significant internal resources in our efforts to detect, investigate and resolve actual or alleged violations.

Increasing regulatory complexity could adversely impact the costs associated with our offshore drilling operations.

Increases in regulatory requirements, particularly in the U.S.

Gulf of Mexico, could significantly increase our costs.

In recent years, we have seen several significant regulatory changes that have affected the way we operate in the U.S.

Gulf of Mexico.

Hurricanes Katrina and Rita in 2005 and Hurricanes Gustav and Ike in 2008 caused damage to a number of rigs in the Gulf of Mexico.

Rigs that were moved off location by the storms damaged platforms, pipelines, wellheads and other drilling rigs.

As a result of jackup rig fitness requirements during hurricane seasons issued by BSEE and its predecessor agency, jackup rigs in the U.S.

Gulf of Mexico are required to operate with a higher air gap (the space between the water level and the bottom of the rig's hull) during hurricane season, effectively reducing the water depth in which they can operate.

The guidelines also provide for enhanced information and data requirements from oil and gas companies operating in the U.S.

Gulf of Mexico.

Following the 2010 Macondo well incident in the U.S.

Gulf of Mexico, the U.S.

Department of the Interior issued Notices to Lessees, implementing new requirements and/or guidelines that are applicable to drilling operations in the U.S.

Gulf of Mexico.

Current or future Notice to Lessees or other rules, directives and regulations may further impact our customers' ability to obtain permits and commence or continue deep or shallow water operations in the U.S.

Gulf of Mexico.

In 2016, BSEE promulgated the 2016 Well Control Rule imposing new requirements for well-control and blowout prevention equipment that could increase our costs and cause delays in our operations due to unavailability of associated equipment.

In May 2018, BSEE proposed revisions to the 2016 Well Control Rule.

This proposed rule would revise requirements for well design, well control, casing, cementing, real-time monitoring and subsea containment.

The revisions are targeted to ensure safety and environmental protection while correcting errors in the 2016 rule and reducing certain unnecessary regulatory burdens imposed under the existing regulations.

The proposed revisions have not yet been finalized.

Also, as a result of the Macondo well incident, BSEE and its predecessor agency promulgated regulations regarding SEMS.

Although only operators are currently required to have a SEMS, the SEMS regulations require written agreements between operators and contractors regarding the contractors’ support of the operators' safety and environmental policies at the worksite, including requirements for personnel training and written safe work practices.

In addition, BSEE has in the past stated that future rulemaking may require offshore drilling contractors to implement their own SEMS programs.

The current SEMS regulations and the possibility of additional SEMS rules for contractors could expose us to increased costs.

In 2012, BSEE issued an IPD for use by BSEE inspectors in INCs to contractors operating under BSEE jurisdiction on the Outer Continental Shelf of the U.S.

Gulf of Mexico.

The stated purpose of the policy was to provide for consistency in application of BSEE enforcement authority by establishing guidelines for issuance of INCs to contractors in addition to operators.

The policy indicated that BSEE’s enforcement actions would continue to focus primarily on lessees and operators, but that “in appropriate circumstances” BSEE also would issue INCs to contractors for “serious violations” of BSEE regulations.

Following federal court decisions successfully challenging the scope of BSEE’s jurisdiction over offshore contractors, this IPD has been removed from the list of IPDs on the BSEE website.

If this judicial precedent stands, it may reduce regulatory and civil litigation liability exposures.

Since 2014, the United States Coast Guard has proposed new regulations that would impose GPS equipment and positioning requirements for MODUs and jackup rigs operating in the U.S.

Gulf of Mexico and issued notices regarding the development of guidelines for cybersecurity measures used in the marine and offshore energy sectors

for all vessels and facilities that are subject to the MTSA, including our rigs.

In 2016, BSEE adopted the 2016 Well Control Rule, which will be implemented in phases over the next several years.

This new rule includes more stringent design requirements for well-control equipment used in offshore drilling operations.

As described above, revisions to this rule have been proposed by BSEE, which could reduce the regulatory burden of the rule.

We are continuing to evaluate the cost and effect that these new rules will have on our operations.

However, based on our current assessment of the rules, we do not expect to incur significant costs to comply with the rule.

Implementation of further guidelines and regulations may subject us to increased costs and limit the operational capabilities of our rigs.

Any new or additional regulatory, legislative, permitting or certification requirements in the U.S., including laws and regulations that have or may impose increased financial responsibility, oil spill abatement contingency plan capability requirements, or additional operational requirements and certifications, could materially adversely affect our financial position, operating results or cash flows.

We anticipate that government regulation in other countries where we operate may follow the U.S.

in regard to enhanced safety and environmental regulation, which could also result in governments imposing sanctions on contractors when operators fail to comply with regulations that impact drilling operations.

Even if not a requirement in these countries, most international operating companies, and many others, are voluntarily complying with some or all of the U.S.

inspections and safety and environmental guidelines when operating outside the U.S.

Such additional governmental regulation and voluntary compliance by operators could increase the cost of our operations and expose us to greater liability.

Compliance with or breach of environmental laws can be costly and could limit our operations.

Our operations are subject to laws and regulations controlling the discharge of materials into the environment, pollution, contamination and hazardous waste disposal or otherwise relating to the protection of the environment.

Environmental laws and regulations specifically applicable to our business activities could impose significant liability on us for damages, clean-up costs, fines and penalties in the event of oil spills or similar discharges of pollutants or contaminants into the environment or improper disposal of hazardous waste generated in the course of our operations.

To date, such laws and regulations have not had a material adverse effect on our operating results, and we have not experienced an accident that has exposed us to material liability arising out of or relating to discharges of pollutants into the environment.

However, the legislative, judicial and regulatory response to a well incident could substantially increase our and our customers' liabilities.

In addition to potential increased liabilities, such legislative, judicial or regulatory action could impose increased financial, insurance or other requirements that may adversely impact the entire offshore drilling industry.

The International Convention on Oil Pollution Preparedness, Response and Cooperation, the International Convention on Civil Liability for Oil Pollution Damage 1992, the U.K.

Merchant Shipping Act 1995, Marpol 73/78 (the International Convention for the Prevention of Pollution from Ships), the U.K.

Merchant Shipping (Oil Pollution Preparedness, Response and Co-operation Convention) Regulations 1998, as amended, and other related legislation and regulations and the OPA 90, as amended, the Clean Water Act, and other U.S.

federal statutes applicable to us and our operations, as well as similar statutes in Texas, Louisiana, other coastal states and other non-U.S.

jurisdictions, address oil spill prevention, reporting and control and have significantly expanded potential liability, fine and penalty exposure across many segments of the oil and gas industry.

Such statutes and related regulations impose a variety of obligations on us related to the prevention of oil spills, disposal of waste and liability for resulting damages.

For instance, OPA 90 imposes strict and, with limited exceptions, joint and several liability upon each responsible party for oil removal costs as well as a variety of fines, penalties and damages.

Although OPA 90 provides for certain limits of liability, such limits are not applicable where there is any safety violation or where gross negligence is involved.

Failure to comply with these statutes and regulations, including OPA 90, may subject us to civil or criminal enforcement action, which may not be covered by contractual indemnification or insurance and could have a material adverse effect on our financial position, operating results or cash flows.

Further, remedies under the Clean Water Act and related legislation and OPA 90 do not preclude claims under state regulations or civil claims for damages to third parties under state laws.

High profile and catastrophic events, including the 2010 Macondo well incident, have heightened governmental and environmental concerns about the risks associated with offshore oil and gas drilling.

We are adversely affected by restrictions on drilling in certain areas in which we operate, including policies and guidelines regarding the approval of drilling permits, restrictions on development and production activities, and directives and regulations that have and may further impact our operations.

From time to time, legislative and regulatory proposals have been introduced that would materially limit or prohibit offshore drilling in certain areas, or that would increase the liabilities or costs associated with offshore drilling.

If new laws are enacted, or if government actions are taken that restrict or prohibit offshore drilling in our principal areas of operation or that impose environmental or other requirements that materially increase the liabilities, financial requirements or operating or equipment costs associated with offshore drilling, exploration, development, or production of oil and natural gas, our financial position, operating results or cash flows could be materially adversely affected.

Laws and governmental regulations may add to costs, limit our drilling activity or reduce demand for our drilling services.

Our operations are affected by political developments and by laws and regulations that relate directly to the oil and gas industry.

The offshore contract drilling industry is dependent on demand for services from the oil and gas industry.

Accordingly, we will be directly affected by the approval and adoption of laws and regulations limiting or curtailing exploration and development drilling for oil and natural gas for economic, environmental, safety and other policy reasons.

Furthermore, we may be required to make significant capital expenditures or incur substantial additional costs to comply with new governmental laws and regulations.

It is also possible that legislative and regulatory activity could adversely affect our operations by limiting drilling opportunities or significantly increasing our operating costs.

Regulation of greenhouse gases and climate change could have a negative impact on our business.

Governments around the world are increasingly focused on enacting laws and regulations regarding climate change and regulation of greenhouse gases.

Lawmakers and regulators in the jurisdictions where we operate have proposed or enacted regulations requiring reporting of greenhouse gas emissions and the restriction thereof, including increased fuel efficiency standards, carbon taxes or cap and trade systems, restrictive permitting, and incentives for renewable energy.

In addition, efforts have been made and continue to be made in the international community toward the adoption of international treaties or protocols that would address global climate change issues and impose reductions of hydrocarbon-based fuels, including plans developed in connection with the Paris climate conference in December 2015 and the Katowice climate conference in December 2018.

Laws or regulations incentivizing or mandating the use of alternative energy sources such as wind power and solar energy have also been enacted in certain jurisdictions.

Additionally, numerous large cities globally and several countries have adopted programs to mandate or incentivize the conversion from internal combustion engine powered vehicles to electric-powered vehicles and placed restrictions on non-public transportation.

Such policies or other laws, regulations, treaties and international agreements related to greenhouse gases and climate change may negatively impact the price of oil relative to other energy sources, reduce demand for hydrocarbons, limit drilling in the offshore oil and gas industry, or otherwise unfavorably impact our business, our suppliers and our customers, and result in increased compliance costs and additional operating restrictions, all of which would have a material adverse impact on our business.

In addition, there have also been efforts in recent years to influence the investment community, including investment advisors and certain sovereign wealth, pension and endowment funds, promoting divestment of fossil fuel equities and pressuring lenders to limit funding to companies engaged in the extraction of fossil fuel reserves.

Such environmental activism and initiatives aimed at limiting climate change and reducing air pollution could ultimately interfere with our business activities and operations and our access to capital.

In addition to potential impacts on our business resulting from climate-change legislation or regulations, our business also could be negatively affected by climate-change related physical changes or changes in weather patterns.

An increase in severe weather patterns could result in damages to or loss of our rigs, impact our ability to conduct our operations and/or result in a disruption of our customers’ operations.

Finally, increasing attention to the risks of climate change has resulted in an increased possibility of lawsuits or investigations brought by public and private entities

against oil and natural gas companies in connection with their greenhouse gas emissions.

Should we be targeted by any such litigation or investigations, we may incur liability, which, to the extent that societal pressures or political or other factors are involved, could be imposed without regard to the causation of or contribution to the asserted damage, or to other mitigating factors.

The ultimate impact of greenhouse gas emissions-related agreements, legislation and measures on our company’s financial performance is highly uncertain because we are unable to predict with certainty, for a multitude of individual jurisdictions, the outcome of political decision-making processes and the variables and tradeoffs that inevitably occur in connection with such processes.

Geopolitical events, terrorist attacks, piracy and military action could affect the markets for our services and have a material adverse effect on our business and cost and availability of insurance.

Geopolitical events and violence could affect the markets for our services and have a material adverse effect on our business and cost and availability of insurance.

Geopolitical events have resulted in military actions, terrorist, pirate and other armed attacks, civil unrest, political demonstrations, mass strikes and government responses.

10 unchanged sentences

During the third quarter of 2019, we entered into amendments to our construction agreements with the shipyard for the VALARIS DS-13 and VALARIS DS-14 rigs to provide for two-year extensions of the delivery date of each rig into 2021 and 2022, respectively.

On December 30, 2020, we reached an agreement in principle to amend and assume pursuant to section 365 of the Bankruptcy Code the two construction agreements, which was subsequently modified through further negotiations.

On February 26, 2021, we entered into amended agreements that extend the delivery date for both new rigs to December 31, 2023.

During periods of heightened rig construction projects, shipyards and third-party equipment vendors may be under significant resource constraints to meet delivery obligations.

Such constraints may lead to substantial delivery and commissioning delays, equipment failures and/or quality deficiencies.

constraints may lead to substantial delivery and commissioning delays, equipment failures and/or quality deficiencies.

Furthermore, new drilling rigs may face start-up or other operational complications following completion of construction, upgrades or maintenance.

17 unchanged sentences

• additional risks inherent to shipyard projects in a non-U.S.

With respect to VALARIS DS-13 and VALARIS DS-14, if we were to secure contracts for such rigs, we would be subject to the risk of delays and other hazards impacting the viability of such contracts, which could have a material adverse effect on our financial position, operating results or cash flows.

With respect to VALARIS DS-13 and VALARIS DS-14, if we were to secure contracts for these rigs, we would be subject to the risk of delays and other hazards impacting the viability of such contracts, which could have a material adverse effect on our financial position, operating results or cash flows.

In addition, we believe the costs required to reactivate a stacked rig and return the rig to drilling service are significant.

2 unchanged sentences

We can provide no assurance that we will have access to adequate or economical sources of capital to fund the return of stacked rigs to drilling service.

Failure to recruit and retain skilled personnel could adversely affect our operations and financial results.

We require skilled personnel to operate our drilling rigs and to provide technical services and support for our business.

Failure to recruit and retain skilled personnel could adversely affect our business.

We require skilled personnel to operate our drilling rigs and to provide technical services and support for

our business.

Historically, competition for the labor required for drilling operations and construction projects was intense as the number of rigs activated, added to worldwide fleets or under construction increased, leading to shortages of qualified personnel in the industry.

During such periods of intensified competition, it is more difficult and costly to recruit and retain qualified employees, especially in foreign countries that require a certain percentage of national employees.

The recent prolonged industry downturn may further reduce the number of qualified personnel available.

The recent prolonged industry downturn and reductions in offshore personnel wages may further reduce the number of qualified personnel available.

If competition for labor were to intensify in the future, we could experience an increase in operating expenses, with a resulting reduction in net income, and our ability to fully staff and operate our rigs could be negatively affected.

1 unchanged sentence

We also are subject to potential legislative or regulatory action that may impact working conditions, paid time off or other conditions of employment.

If such labor trends continue, they could further increase our costs or limit our ability to fully staff and operate our rigs.

Unionization efforts and labor regulations in certain countries in which we operate could materially increase our costs or limit our flexibility.

Outside of the U.S., we are often subject to collective bargaining agreements that require periodic salary negotiations, which usually result in higher personnel expenses and other benefits.

Efforts have been made from time to time to unionize other portions of our workforce.

In addition, we have been subjected to strikes or work stoppages and other labor disruptions in certain countries.

Additional unionization efforts, new collective bargaining agreements or work stoppages could materially increase our costs, reduce our revenues or limit our flexibility.

Certain legal obligations require us to contribute certain amounts to retirement funds or other benefit plans and restrict our ability to dismiss employees.

Future regulations or court interpretations established in the countries in which we conduct our operations could increase our costs and materially adversely affect our business, financial position, operating results or cash flows.

We have historically made substantial capital expenditures to maintain our fleet to comply with laws and the applicable regulations and standards of governmental authorities and organizations, or to expand our fleet, and we may be required to make significant capital expenditures to maintain our competitiveness, which could adversely affect our financial condition, operating results or cash flows.

These conditions could further increase our costs or limit our ability to fully staff and operate our rigs.

We have historically made substantial capital expenditures to maintain our fleet.

3 unchanged sentences

• customer requirements,

• fleet size,

• the cost of replacement parts for existing drilling rigs,

9 unchanged sentences

If we are unable to fund capital with cash flows from operations or proceeds from sales of non-core assets, we may be required to either incur additional borrowings or raise capital through the sale of debt or equity securities.

Our ability to access the capital markets may be limited by our financial condition at the time, by changes in laws and regulations (or interpretation thereof) and by adverse market conditions resulting from, among others, general economic conditions, contingencies and uncertainties that are beyond our control.

Our ability to access the capital markets may be limited by our financial condition at the time, by changes in laws and regulations (or

interpretation thereof) and by adverse market conditions resulting from, among others, general economic conditions, contingencies and uncertainties that are beyond our control.

Similarly, when lenders and institutional investors reduce, and in some cases cease to provide, funding to industry borrowers, the liquidity and financial condition of us and our customers can be adversely impacted.

1 unchanged sentence

Our failure to obtain the funds for necessary future capital expenditures could have a material adverse effect on our business and on our financial position, operating results or cash flows.

Unionization efforts and labor regulations in certain countries in which we operate could materially increase our costs or limit our flexibility.

Outside of the U.S., we are often subject to collective bargaining agreements that require periodic salary negotiations, which usually result in higher personnel expenses and other benefits.

Efforts have been made from time to time to unionize other portions of our workforce.

In addition, we have been subjected to strikes or work stoppages and other labor disruptions in certain countries.

Additional unionization efforts, new collective bargaining agreements or work stoppages could materially increase our costs, reduce our revenues or limit our flexibility.

Certain legal obligations require us to contribute certain amounts to retirement funds or other benefit plans and restrict our ability to dismiss employees.

Significant part or equipment shortages, supplier capacity constraints, supplier production disruptions, supplier quality and sourcing issues or price increases could increase our operating costs, decrease our revenues and adversely impact our operations.

1 unchanged sentence

Certain high-specification parts and equipment that we use in our operations may be available only from a small number of suppliers, manufacturers or service providers, or in some cases must be sourced through a single supplier, manufacturer or service provider.

Recent industry consolidation has reduced the number of available suppliers.

Recent deterioration in the business environment has reduced the number of available suppliers, and the imposition of further public health measures affecting supply chain and logistics due to the COVID-19 pandemic may negatively impact our suppliers.

Additionally, the longer that our Chapter 11 Cases continue, the more likely it is that our suppliers will lose confidence in our ability to reorganize our business successfully and will seek to establish alternative commercial relationships.

A disruption in the deliveries from such third-party suppliers, manufacturers or service providers, capacity constraints, production disruptions, price increases, quality control issues, recalls or other decreased availability of parts and equipment could adversely affect our ability to meet our commitments to customers, thus adversely impacting our operations and revenues and/or our operating costs.

7 unchanged sentences

Contract preparation expenses vary based on the scope and length of contract preparation required.

Our information technology systems are subject to cybersecurity risks and threats.

Our information technology systems, including rig operating systems, are subject to cybersecurity risks and threats.

We depend on technologies, systems and networks to conduct our offshore and onshore operations, to collect payments from customers and to pay vendors and employees.

7 unchanged sentences

Any such breach or attack could also compromise our networks or our customers' and vendors' networks and the information stored there could be accessed, publicly disclosed, lost or stolen.

Any such access, disclosure or other loss of information could result in legal claims or proceedings, including under data privacy laws and regulations such as the European Union General Data Protection Regulation, disrupt our operations and damage our reputation, which could adversely affect our financial position, operating results or cash flows.

Any such access, disclosure or other loss of information could result in significant fines, civil and/or criminal claims or proceedings, including under data privacy laws and regulations such as the European Union General Data Protection Regulation and, with effect from January 1, 2021, such regulation as amended and forming part of the law of the United Kingdom, disruption to our operations and damage our reputation, which could adversely affect our financial position, operating results or cash flows.

In the past, we have experienced data security breaches resulting from unauthorized access to our systems, which to date have not had a material impact on our operations;

however, there is no assurance that such impacts will not be material in the future.

however, there can be no assurance that such impacts will not be material in the future.

Risk Related to Our Indebtedness and Ordinary Shares

Our Class A ordinary shares have been delisted from the NYSE.

Effective September 14, 2020, our Class A ordinary shares were delisted from the NYSE.

Since August 19, 2020, our shares have been traded on the OTC Pink Open Market under the symbol “VALPQ.” We can provide no assurance that our ordinary shares will continue to trade on this market, whether broker-dealers will continue to provide public quotes of our ordinary shares on this market, whether the trading volume of our ordinary shares will be sufficient to provide for an efficient trading market or whether quotes for our ordinary shares will continue on this market in the future, which could result in significantly lower trading volumes and reduced liquidity for investors seeking to buy or sell our ordinary shares.

The accounting method for our 2024 Convertible Notes could have a material effect on our reported financial results.

GAAP, we must separately account for the liability and equity components of convertible debt instruments, such as our 3.00% exchangeable senior notes due 2024 (the “2024 Convertible Notes”) in a manner that reflects the issuer’s economic interest cost.

Based on our current plan of reorganization, we expect our 3.00% exchangeable senior notes due 2024 (the “2024 Convertible Notes”) to be cancelled with holders receiving the treatment as set forth in the plan of reorganization.

However, to the extent the 2024 Convertible Notes (as defined below) are not cancelled, under U.S.

GAAP, we must separately account for the liability and equity components of convertible debt instruments, such as our 2024 Convertible Notes in a manner that reflects the issuer’s economic interest cost.

The equity component representing the conversion feature is recorded in additional paid-in capital within the shareholders’ equity section of our consolidated balance sheet.

The carrying value of the debt component is recorded with a corresponding discount that will result in a significant amount of non-cash interest expense from the accretion of the discounted carrying value up to the principal amount over the term of the

2024 Convertible Notes.

The equity component is not remeasured if we continue to meet certain conditions for equity classification under U.S.

1 unchanged sentence

During periods in which we are unable to meet the conditions for equity classification, the equity component or a portion thereof would be remeasured through earnings, which could adversely affect our operating results.

Upon conversion of the 2024 Convertible Notes, holders will receive cash, our Class A ordinary shares or a combination thereof, at our election.

If the 2024 Convertible are not cancelled pursuant to our plan reorganization, upon conversion of the 2024 Convertible Notes, holders will receive cash, our Class A ordinary shares or a combination thereof, at our election.

Our intent is to settle the principal amount of the 2024 Convertible Notes in cash upon conversion.

If the conversion value exceeds the principal amount (i.e., our share price exceeds the exchange price on the date of conversion), we expect to deliver shares equal to our conversion obligation in excess of the principal amount.

During each respective reporting period that our average share price exceeds the exchange price, an assumed number of shares required to settle the conversion obligation in excess of the principal amount will be included in the denominator for our computation of diluted earnings per share using the treasury stock method.

During each respective reporting period that our average share price exceeds the exchange price, an assumed number of shares required to

settle the conversion obligation in excess of the principal amount will be included in the denominator for our computation of diluted earnings per share using the treasury stock method.

If we are unable to demonstrate our intent to settle the principal amount in cash, or are otherwise unable to utilize the treasury stock method, our diluted earnings per share would be adversely affected.

See Note 6 to our consolidated financial statements included in "Item 8.

See " Note 8 - Debt" to our consolidated financial statements included in "Item 8.

Financial Statements and Supplementary Data" for additional information on our 2024 Convertible Notes.

The IRS may not agree with the conclusion that we should be treated as a foreign corporation for U.S.

federal tax purposes.

Although Valaris plc is incorporated in the United Kingdom (and thus would generally be considered a “foreign” corporation (or non-U.S.

tax resident)), the U.S.

Internal Revenue Service (“IRS”) may assert that we should be treated as a U.S.

corporation (and U.S.

tax resident) pursuant to the rules under Section 7874 of the Internal Revenue Code (including as a result of the Atwood acquisition completed in 2017).

While we do not believe we are appropriately treated as a U.S.

corporation pursuant to these rules, the rules are complex and the determination is subject to factual uncertainties.

If the IRS successfully challenged our status as a foreign corporation, significant adverse tax consequences would result for us and for certain of our shareholders.

tax laws and IRS guidance could affect our ability to engage in certain acquisition strategies and certain internal restructurings.

Even if we are currently treated as a foreign corporation for U.S.

federal income tax purposes, Section 7874 of the Internal Revenue Code and U.S.

Treasury Regulations promulgated thereunder, including temporary Treasury Regulations, may adversely affect our ability to engage in certain future acquisitions of U.S.

businesses in exchange for our equity, which may affect the tax efficiencies that otherwise might be achieved in such potential future transactions.

Governments may pass laws that subject us to additional taxation or may challenge our tax positions, which could adversely affect our financial position, operating results or cash flows.

There is increasing uncertainty with respect to tax laws, regulations and treaties, and the interpretation and enforcement thereof that may affect our business.

The Organization for Economic Cooperation and Development (“OECD”) has issued its final reports on base erosion and profit shifting, which generally focus on situations where profits are earned in low-tax jurisdictions, or payments are made between affiliates from jurisdictions with high tax rates to jurisdictions with lower tax rates.

Certain countries within which we operate have recently enacted changes to their tax laws in response to the OECD recommendations or otherwise and these and other countries may enact changes to their tax laws or practices in the future (prospectively or retroactively), which may have a material adverse effect on our financial position, operating results or cash flows.

federal income tax reform legislation enacted in late 2017 introduced significant changes to U.S.

income tax law, including a reduction in the statutory income tax rate from 35% to 21% , a one-time transition tax on deemed repatriation of deferred foreign income, a base erosion anti-abuse tax that effectively imposes a minimum tax on certain payments to non-U.S.

affiliates, new and revised rules relating to the current taxation of certain income of foreign subsidiaries and revised rules associated with limitations on the deduction of interest.

In addition, our tax positions are subject to audit by U.K., U.S.

and other foreign tax authorities.

Such tax authorities may disagree with our interpretations or assessments of the effects of tax laws, treaties or regulations or their applicability to our corporate structure or certain transactions we have undertaken.

Even if we are successful in maintaining our tax positions, we may incur significant expenses in defending our positions and contesting claims asserted by tax authorities.

If we are unsuccessful in defending our tax positions, the resulting assessments or rulings could significantly impact our consolidated income taxes in past or future periods.

See Note 12 to our consolidated financial statements included in "Item 8.

Financial Statements and Supplementary Data" for information on income taxes.

During the third quarter of 2019, we made a A$42 million payment (approximately $29 million at then-current exchange rates) to the Australian tax authorities to litigate the assessment.

We are also contesting the Luxembourg tax assessments.

We may make a payment to the Luxembourg tax authorities in advance of the final resolution of these assessments.

Although the outcome of such assessments cannot be predicted with certainty, unfavorable outcomes could have a material adverse effect on our liquidity.

As a result of these uncertainties, as well as changes in the administrative practices and precedents of tax authorities or other matters (such as changes in applicable accounting rules) that increase the amounts we have provided for income taxes or deferred tax assets and liabilities in our consolidated financial statements, we cannot provide any assurances as to what our consolidated effective income tax rate will be in future periods.

If we are unable to mitigate the negative consequences of any change in law, audit or other matters, this could cause our consolidated income taxes to increase and cause a material adverse effect on our financial position, operating results or cash flows.

Our consolidated effective income tax rate may vary substantially from one reporting period to another.

We cannot provide any assurances as to what our future consolidated effective income tax rate will be because of, among other matters, uncertainty regarding the nature and extent of our business activities in any particular jurisdiction in the future and the tax laws of such jurisdictions, as well as potential changes in U.K., U.S.

and other foreign tax laws, regulations or treaties or the interpretation or enforcement thereof, changes in the administrative practices and precedents of tax authorities or other matters (such as changes in applicable accounting rules) that increase the amounts we have provided for income taxes or deferred tax assets and liabilities in our consolidated financial statements.

In addition, as a result of frequent changes in the taxing jurisdictions in which our drilling rigs are operated and/or owned, changes in the overall level of our income and changes in tax laws, our consolidated effective income tax rate may vary substantially from one reporting period to another.

In periods of declining profitability, our income tax expense may not decline proportionately with income.

Further, we may continue to incur income tax expense in periods in which we operate at a loss.

Income tax rates imposed in the tax jurisdictions in which our subsidiaries conduct operations vary, as does the tax base to which the rates are applied.

In some cases, tax rates may be applicable to gross revenues, statutory or negotiated deemed profits or other bases utilized under local tax laws, rather than to net income.

In some instances, the movement of drilling rigs among taxing jurisdictions will involve the transfer of ownership of the drilling rigs among our subsidiaries.

If we are unable to mitigate the negative consequences of any change in law, audit, business activity or other matters, this could cause our consolidated effective income tax rate to increase and cause a material adverse effect on our financial position, operating results or cash flows.

Transfers of our Class A ordinary shares may be subject to stamp duty or stamp duty reserve tax (“SDRT”) in the U.K., which would increase the cost of dealing in our Class A ordinary shares.

18 unchanged sentences

The facilities of DTC are widely-used for rapid electronic transfers of securities between participants within the DTC system, which include numerous major international financial institutions and brokerage firms.

Currently, all trades of our Class A ordinary shares on the NYSE are cleared and settled on the facilities of DTC.

Currently, all trades of our Class A ordinary shares on the OTC Pink Open Market are cleared and settled on the facilities of DTC.

Our Class A ordinary shares are, at present, eligible for deposit and clearing within the DTC system, pursuant to arrangements with DTC whereby DTC accepted our Class A ordinary shares for deposit, clearing and settlement services, and we agreed to indemnify DTC for any stamp duty and/or SDRT that may be assessed upon it as a result of its service as a clearance system provider for our Class A ordinary shares.

However, DTC retains sole discretion to cease to act as a clearance system provider for our Class A ordinary shares at any time.

If DTC determines at any time that our shares are no longer eligible for deposit, clearing and settlement services within its facilities, our shares may become ineligible for continued listing on a U.S.

securities exchange, and trading in such shares would be disrupted.

If DTC determines at any time that our shares are no longer eligible for deposit, clearing and settlement services within its facilities, trading in such shares would be disrupted.

In this event, DTC has agreed it will provide us advance notice and assist us, to the extent possible, with efforts to mitigate adverse consequences.

While we would pursue alternative arrangements to preserve our listing and maintain trading, any such disruption could have a material adverse effect on the trading price of our Class A ordinary shares.

Investor enforcement of civil judgments against us may be more difficult.

Because we are a public limited company incorporated under the Laws of England and Wales, investors could experience difficulty enforcing judgments obtained against us in U.S.

In addition, it may be more difficult (or impossible) to bring some types of claims against us in courts in England than it would be to bring similar claims against a U.S.

company in a U.S.

We have less flexibility as a U.K.

7 unchanged sentences

public limited company may only allot shares with the prior authorization of an ordinary resolution of the company’s shareholders, which authorization must state the maximum amount of shares that may be allotted under it and specify the date on which it will expire, which must not be more than five years from the date on which the shareholder resolution is passed.

An ordinary resolution was passed by shareholders at our last annual general meeting in 2019 to authorize the allotment of up to a prescribed amount of additional shares until the conclusion of the next annual general meeting or the close of business on August 19, 2020 (whichever is earlier).

An ordinary resolution will be put to shareholders at our next annual shareholder meeting seeking their approval to renew the board's authority to allot up to a prescribed amount of shares for an additional term.

An ordinary resolution was passed by shareholders at our last annual general meeting on June 15, 2020 to authorize the allotment of up to a prescribed amount of additional shares until the conclusion of the next annual general meeting or the close of business on August 19, 2021 (whichever is earlier).

English law also generally provides shareholders pre-emption rights over new shares that are issued for cash.

2 unchanged sentences

If the general allotment authority is renewed, the authority excluding pre-emption rights may also be renewed by a special resolution of the shareholders.

A special resolution was passed, in conjunction with an allotment authority at our last annual general meeting in 2019, to disapply pre-emption rights in respect of new shares up to a prescribed amount until the conclusion of the next annual general meeting or the close of business on August 19, 2020 (whichever is earlier).

Special resolutions will be put to shareholders at our next annual shareholder meeting seeking their approval to renew the board's authority to disapply pre-emption rights in respect of new shares up to a prescribed amount for an additional term.

English law prohibits us from conducting "on-market purchases" as our shares will not be traded on a “recognized investment exchange”.

English law also generally prohibits a company from repurchasing its own shares by way of "off-market purchases" without the approval by a special resolution of the shareholders of the terms of the contract by which the purchase(s) is affected.

Two special resolutions were passed, in conjunction with an allotment authority at our last annual general meeting on June 15, 2020, to disapply pre-emption rights in respect of new shares up to a prescribed amount, both generally and in connection with an acquisition or specified capital investment, until the conclusion of the next annual general meeting or the close of business on August 19, 2021 (whichever is earlier).

Our shares are not traded on a “recognized investment exchange” for the purposes of English law and we are therefore only able to conduct “off-market” purchases of our shares.

English law generally prohibits a company from repurchasing its own shares by way of "off-market" purchases without approval by ordinary resolution of the shareholders of the terms of the contract by which the purchase(s) is affected.

Such approval may only last for a maximum period of five years after the date on which the resolution is passed.

A special resolution was passed at our annual shareholder meeting in May 2018 to permit us to make "off-market" purchases of our own shares pursuant to certain purchase agreements for a five-year term.

We can provide no assurances that the shareholder approvals required for the matters described above will be forthcoming.

An ordinary resolution was passed at our annual shareholder meeting on May 21, 2018 authorizing us to make "off-market" purchases of our own shares pursuant to certain purchase agreements for a five-year term.

We can provide no assurances that future shareholder approvals required for the matters described above will be forthcoming.

If all or any of such approvals are not granted, our flexibility with respect to certain capital management matters could be reduced which could, in turn, deprive our shareholders of substantial benefits.

Our articles of association contain anti-takeover provisions;

however, the Company is not subject to the U.K.'s City Code on Takeovers and Mergers.

Certain provisions of our articles of association have anti-takeover effects, such as the ability to issue shares under the Rights Plan (as defined therein).

These provisions are intended to ensure that any takeover or change of control of the Company is conducted in an orderly manner, all shareholders of the Company are treated equally and

fairly and receive an optimum price for their shares and the long-term success of the Company is safeguarded.

These provisions are intended to ensure that any takeover or change of control of the Company is conducted in an orderly manner, all shareholders of the Company are treated equally and fairly and receive an optimum price for their shares and the long-term success of the Company is safeguarded.

Under English law, it may not be possible to implement these provisions in all circumstances.

The Company is not subject to the U.K.'s Code on Takeovers and Mergers (the “Code”).

The Code only applies to an offer for a public company that is registered in the U.K.

12 unchanged sentences

We may be unable to remit the profits of our subsidiaries in a timely or tax efficient manner.

If at any time we do not have sufficient distributable reserves to declare and pay quarterly dividends, we may undertake a reduction in the capital of the Company, in addition to the reduction in capital taken in 2014, to reduce the amount of our share capital and non-distributable reserves and to create a corresponding increase in our distributable reserves out of which future distributions to shareholders can be made.

To comply with English law, a reduction of capital would be subject to (a) approval of shareholders at a general meeting by special resolution;

If at any time we do not have sufficient distributable reserves to declare and pay quarterly dividends, we may undertake a reduction in the capital of the Company, in addition to the reduction of capital undertaken in 2014, to reduce the amount of our share capital and non-distributable reserves and to create a corresponding increase in our distributable reserves out of which future distributions to shareholders can be made.

To comply with English law, a reduction of capital would, in addition to the restrictions described above, be subject to (a) approval of shareholders at a general meeting by special resolution;

(b) confirmation by an order of the English Courts and (c) the Court order being delivered to and registered by the Registrar of Companies in England.

If we were to pursue a reduction of capital of the Company as a course of action, and failed to obtain the necessary approvals from shareholders and the English Courts, we may undertake other efforts to allow the Company to declare dividends and return funds to shareholders.

Legal, Regulatory and Tax Risks

Failure to comply with anti-bribery statutes, such as the U.S.

Foreign Corrupt Practices Act and the U.K.

Bribery Act, could result in fines, criminal penalties, drilling contract terminations and an adverse effect on our business.

We operate in a number of countries throughout the world, including countries known to have a reputation for corruption and are subject to the U.S.

Foreign Corrupt Practices Act of 1977 (“FCPA”), the U.S.

Treasury Department's Office of Foreign Assets Control ("OFAC") regulations, the U.K.

Bribery Act ("UKBA"), other U.S.

laws and regulations governing our international operations and similar laws in other countries.

the drilling services agreement with Petrobras for the DS-5 (the "DSA").

The Brazilian authorities requested information regarding our compliance program and the findings of our internal investigations relating to the DSA.

We cooperated with the Office of the Attorney General and provided documents in response to its request.

Any violation of the FCPA, OFAC regulations, the UKBA or other applicable anti-corruption laws by us, our affiliated entities or their respective officers, directors, employees and agents could in some cases provide a customer with termination rights and other remedies under the terms of their contracts(s) with us and also result in substantial fines, sanctions, civil and/or criminal penalties and curtailment of operations in certain jurisdictions and could adversely affect our financial condition, operating results, cash flows or the availability of funds under our revolving credit facility.

Further, we may incur significant costs and consume significant internal resources in our efforts to detect, investigate and resolve actual or alleged violations.

Increasing regulatory complexity could adversely impact the costs associated with our offshore drilling operations and reduce demand.

The offshore contract drilling industry is dependent on demand for services from the oil and gas industry.

Furthermore, we may be required to make significant capital expenditures or incur substantial additional costs to comply with new governmental laws and regulations.

It is also possible that legislative and regulatory activity could adversely affect our operations by limiting drilling opportunities or significantly increasing our operating costs.

Increases in regulatory requirements, particularly in the U.S.

Gulf of Mexico, could significantly increase our costs.

In recent years, we have seen several significant regulatory changes that have affected the way we operate in the U.S.

Gulf of Mexico.

As a result of jackup rig fitness requirements during hurricane seasons issued by BSEE and its predecessor agency, jackup rigs in the U.S.

The guidelines also provide for enhanced information and data requirements from oil and gas companies operating in the U.S.

Gulf of Mexico.

Current or future Notice to Lessees from the U.S.

Department of the Interior or other rules, directives and regulations may further impact our customers' ability to obtain permits and commence or continue deep or shallow water operations in the U.S.

Gulf of Mexico.

Proposed revisions to the 2016 Well Control Rule, which imposed new requirements for well-control and blowout prevention equipment that could increase our costs and cause delays in our operations due to unavailability of associated equipment, would revise requirements for well design, well control, casing, cementing, real-time monitoring and subsea containment.

The proposed revisions have not yet been finalized.

Although only operators are currently required to have a SEMS, BSEE has in the past stated that future rulemaking may require offshore drilling contractors to implement their own SEMS programs.

The current SEMS regulations, which require written agreements between operators and contractors regarding the contractors’ support of the operators' safety and environmental policies at the worksite (including requirements for personnel training and written safe work practices), and the possibility of additional SEMS rules for contractors could expose us to increased costs.

Finally, since 2014, the United States Coast Guard has proposed new regulations that would impose GPS equipment and positioning requirements for drilling rigs operating in the U.S.

Gulf of Mexico and issued notices

regarding the development of guidelines for cybersecurity measures used in the marine and offshore energy sectors for all vessels and facilities that are subject to the MTSA, including our rigs.