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Item 1A. Risk Factors

2022-02-22 compared with 2021-03-02 · 353 added, 554 removed, 244 unchanged (79% of the section changed)

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.

Risks Related to Our Business, Operations, Indebtedness and Market Conditions

The effects of the COVID-19 pandemic have adversely impacted, and could continue to adversely impact, our financial condition and results of operations.

Beginning in March 2020, the COVID-19 pandemic and related public health measures implemented by governments worldwide negatively impacted the global macroeconomic environment and resulted in a sharp decline in global oil demand and prices.

In response to reduced oil price expectations, our customers significantly lowered their capital expenditure plans.

As of February 2022, crude oil prices and demand have recovered from the historic lows seen in the first half of 2020.

While the near-term outlook for the offshore drilling industry has improved, particularly for floaters, the global recovery from the COVID-19 pandemic remains uneven, and there is still uncertainty around the sustainability of the improvement in oil prices and the recovery in demand for offshore drilling services.

To date, there have been various impacts from the pandemic and the resultant drop in oil prices, including contract cancellations and the delay or 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 COVID-19 and its variants 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.

In addition, government vaccine mandates and the vaccination requirements of our customers could affect our ability to retain offshore crews or require us to increase wages to retain qualified personnel for our drilling rigs.

The COVID-19 pandemic could continue to adversely impact the supply chain for equipment or services needed for operations, including as a result of mandatory shutdowns and other pandemic-related measures implemented in locations where such equipment or services are manufactured or distributed.

In addition to experiencing increased shipping costs, we could also see significant disruptions of the operations to our logistics and service providers.

Oil prices may continue to be volatile as a result of production instability, ongoing COVID-19 outbreaks, including variant strains of COVID-19, the implementation of vaccination programs and the related impact on overall economic activity, global inflation, 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 offshore oil and natural gas exploration, development and production, which can be significantly affected by volatile oil and natural gas prices.

The success of our business largely depends on the level of activity in offshore oil and natural gas exploration, development and production.

Oil and natural gas prices, and market expectations of potential changes in these prices, significantly affect the level of drilling activity.

Historically, when drilling activity and operator capital spending decline, utilization and day rates also decline and drilling may be reduced or discontinued, resulting in an oversupply of drilling rigs.

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.

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 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.

Historically, when operator capital spending declines, utilization and day rates also decline and drilling may be reduced or discontinued, resulting in an oversupply of drilling rigs.

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

Oil and natural gas prices 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.

While market conditions have recently improved, we have not yet experienced an extended period of sustained oil and natural gas prices.

The lack of a sustained and stable recovery of oil and natural gas prices, further price reductions or volatility in prices may cause our customers to lower levels of capital spending or reduce their overall level of activity, in which case demand for our services may decline and revenues may 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,

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

• oil and natural gas supply and demand, which is affected by worldwide economic activity and population growth,

• expectations regarding future energy prices,

• the ability of the Organization of Petroleum Exporting Countries ("OPEC") to reach further agreements to set and maintain production levels and pricing and to implement existing and future agreements,

• capital allocation decisions by our customers, including the relative economics of offshore development versus onshore prospects,

• capital allocation decisions by our customers, including the relative economics of offshore development versus alternative prospects,

• the level of production by non-OPEC countries,

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• 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 (such as the current moratorium on oil and gas leasing and permitting in federal lands and waters),

• investors reducing, or ceasing to provide, funding to the oil and gas industry in response to initiatives to limit climate change,

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

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• 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 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 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.

• 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 or geographic areas in which we operate, or acts of terrorism.

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, however, 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, extended periods of price volatility 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 could materially reduce our revenues and profitability.

In addition, some of our customers are transitioning their businesses to renewable energy projects and away from oil and natural gas exploration and production, which could result in reduced capital spending by such customers on oil and natural gas projects and in turn reduced demand for our services.

These factors could cause our revenues and profits to decline, 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 drilling 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.

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Our industry is highly competitive, and our contracts are traditionally awarded on a competitive bid basis.

Pricing, safety records and competency are key factors in determining which qualified contractor is awarded a job.

Pricing, safety records and competency are key factors in determining which qualified contractor is awarded a contract.

Rig availability, location and technical capabilities also can be significant factors in the determination.

If we are not able to compete successfully, our revenues and profitability may be reduced.

The offshore contract drilling industry historically has been very cyclical and is primarily related to the demand for drilling rigs and the available supply of drilling rigs.

Demand for rigs is directly related to the regional and worldwide levels of offshore exploration and development spending by oil and gas companies, which is beyond our control.

Offshore exploration and development spending may fluctuate substantially from year-to-year and from region-to-region.

The significant decline in oil and gas prices and resulting reduction in spending by our customers, together with the increase in supply of offshore drilling rigs in recent years, has resulted in an oversupply of offshore drilling rigs and a decline in utilization and day rates, a situation which may persist for many years.

Such a prolonged period of reduced demand and/or excess rig supply has required us, and may in the future require us, to idle or scrap rigs and enter into low day rate contracts or contracts with unfavorable terms.

There can be no assurance that the current demand for drilling rigs will increase in the future.

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.

If we are not able to compete successfully, our revenues and profitability may decline.

Demand for offshore contract drilling services is highly cyclical, which is primarily driven by the demand for drilling rigs and the available supply of drilling rigs.

Demand for drilling rigs is driven by the levels of offshore exploration and development conducted by oil and gas companies, which is beyond our control and may fluctuate substantially from year-to-year and from region-to-region.

Prolonged periods of reduced demand or excess rig supply have required us, and may in the future require us, to idle or scrap rigs and enter into low day rate contracts or contracts with unfavorable terms.

There can be no assurance that the current demand for drilling rigs will increase in the future or that any short-term improvement to market conditions will be sustained.

Any further decline in demand for drilling rigs, coupled with the prolonged oversupply of drilling rigs, could adversely affect our financial position, operating results or cash flows.

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

As of February 21, 2022, our contract backlog was approximately $2.4 billion, which represents an increase of $1.4 billion to the reported backlog of $1.0 billion as of December 31, 2020.

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

The contractual revenue may be higher than the actual revenue we ultimately receive because of a number of factors, including rig downtime or suspension of operations.

Several factors could cause rig downtime or a suspension of operations, many of which are beyond our control, including:

• the early termination, repudiation or renegotiation of contracts,

• breakdowns of equipment,

• work stoppages, including labor strikes,

• shortages of material or skilled labor,

• surveys by government and maritime authorities,

• periodic classification surveys,

• severe weather, strong ocean currents or harsh operating conditions,

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

• force majeure events.

Our customers may seek to terminate, repudiate or renegotiate our drilling contracts for various reasons, including in the event of a total loss of the drilling rig, the suspension or interruption of operations for extended periods due to breakdown of major rig equipment, failure to comply with performance conditions or equipment specifications, "force majeure" events, the failure of the customer to receive final investment decision (FID) with respect to projects for which the drilling rig was contracted or other reasons.

Generally, our drilling contracts permit early termination of the contract by the customer for convenience (without cause), exercisable upon advance notice to us, and in certain cases without making an early termination payment to us.

There can be no assurances that our customers will be able to or willing to fulfill their contractual commitments to us.

A decline in oil prices and any resulting downward pressure on utilization may cause some customers to consider early termination of select contracts despite having to pay onerous early termination fees in certain cases.

Customers may request to renegotiate the terms of existing contracts, or they may request early termination or seek to repudiate contracts.

Furthermore, as contracts expire, we may be unable to secure new contracts for our drilling rigs.

Therefore, revenues recorded in future periods could differ materially from our current backlog.

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.

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.

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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.

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.

Our failure to secure contracts for these rigs at day rates and terms that result in a reasonable return upon completion of construction may result in a material adverse effect on our financial position, operating results or cash flows.

We have a significant amount of debt.

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, 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.

Our ability to maintain a sufficient level of liquidity to meet our financial obligations will be dependent upon our future performance, which will be subject to general economic conditions, industry cycles and financial, business and other factors affecting our operations, many of which are beyond our control.

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 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.

Additional indebtedness or equity financing may not be available to us in the future for the refinancing or repayment of existing debt and other obligations, or if available, such additional debt or equity financing may not be available in a sufficient amount, on a timely basis, or on terms acceptable to us and within the limitations specified in our then existing debt instruments.

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.

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, 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.

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 drilling 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.

If customers do not exercise option periods under contracts that we currently expect to be exercised, we may face increased idle time associated with the related rig, as we may have difficulty securing additional work to cover the option period.

In addition, we may choose to stack idle rigs that are not under contract, which would require us to incur stacking costs for such rigs.

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.

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These risks are heightened in periods of depressed market conditions.

Our drilling contracts provide for varying levels of indemnification from our customers, including with respect to well-control, reservoir liability and pollution.

Our drilling contracts provide for varying levels of indemnification from our customers.

Our drilling contracts also provide for varying levels of indemnification and allocation of liabilities between our customers and us with respect to loss or damage to property and injury or death to persons arising from the drilling operations we perform.

Under our drilling contracts, liability with respect to personnel and property customarily is allocated so that we and our customers each assume liability for our respective personnel and property.

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.

Our customers have historically assumed most of the responsibility for and indemnified us from 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 or willful misconduct.

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We may suffer losses if our customers terminate or seek to renegotiate our contracts, if operations are suspended or interrupted or if a rig becomes a total loss.

In market downturns similar to the current environment, our customers may not be able to honor the terms of existing contracts, may terminate contracts even where there may be onerous termination fees, may seek to void or otherwise repudiate our contracts including by claiming we have breached the contract, or may seek to renegotiate contract day rates and terms in light of depressed market conditions.

Since early 2015, we have renegotiated a number of contracts and received termination notices with respect to several of our rigs.

Often, our drilling contracts are subject to termination without cause or termination for convenience upon notice by the customer.

In certain cases, our contracts require the customer to pay an early termination fee in the event of a termination for convenience (without cause).

In market downturns, our customers may not be able to honor the terms of existing contracts, may terminate contracts even where there may be onerous termination fees, may seek to void or otherwise repudiate our contracts including by claiming we have breached the contract, or may seek to renegotiate contract day rates and terms.

Our drilling contracts may be subject to termination without cause or termination for convenience upon notice by the customer.

In certain cases, our contracts require the customer to pay an early termination fee in the event of an early termination for convenience (without cause), exercisable upon advance notice to us.

Such payment would provide some level of compensation to us for the lost revenue from the contract but in many cases would not fully compensate us for all of the lost revenue.

Certain of our contracts permit termination by the customer without an early termination fee.

Certain contracts may permit termination by the customer without an early termination fee.

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.

If a customer cancels a contract or if we terminate a contract due to the customer’s breach and, in either case, we are unable to secure a new contract on a timely basis and on substantially similar terms, or if a contract is disputed or suspended for an extended period of time or renegotiated, it could materially and adversely affect our financial position, operating results or cash flows.

We may incur impairments as a result of future declines in demand for offshore drilling rigs.

We evaluate the carrying value of our property and equipment, primarily our drilling rigs, when events or changes in circumstances indicate that the carrying value of such rigs may not be recoverable.

The offshore drilling industry historically has been highly cyclical, and it is not unusual for rigs to be idle or underutilized for significant periods of time and subsequently resume full or near full utilization when business cycles change.

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

Financial Statements and Supplementary Data" for additional information.

The loss of a significant customer or customer contract could adversely affect us.

The loss of a significant customer or customer contract, as well as customer consolidation and changes to customer strategy, could adversely affect us.

We provide our services to major international, government-owned and independent oil and gas companies.

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.

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.

During the eight months ended December 31, 2021 (Successor), our five largest customers accounted for 42% of consolidated revenues, with our largest customer representing 11 % of our consolidated revenues and a significant percentage of our operating cash flows.

During the four months ended April 30, 2021 (Predecessor), our five largest customers accounted for 45% of consolidated revenues.

BP, our only customer who accounts for 10% or more of consolidated revenues, accounted for 14 % of consolidated revenues.

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.

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.

The contractual revenue may be higher than the actual revenue we ultimately receive because of a number of factors, including rig downtime or suspension of operations.

Several factors could cause rig downtime or a suspension of operations, many of which are beyond our control, including:

• the early termination, repudiation or renegotiation of contracts,

• breakdowns of equipment,

• work stoppages, including labor strikes,

• shortages of material or skilled labor,

• surveys by government and maritime authorities,

• periodic classification surveys,

• severe weather, strong ocean currents or harsh operating conditions,

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

• force majeure events.

Our customers may seek to terminate, repudiate or renegotiate our drilling contracts for various reasons.

There can be no assurances that our customers will be able to or willing to fulfill their contractual commitments to us.

The decline in oil prices and the resulting downward pressure on utilization has caused and may continue to cause some customers to consider early termination of select contracts despite having to pay onerous early termination fees in certain cases.

Customers may continue to request to renegotiate the terms of existing contracts, or they may request early termination or seek to repudiate contracts in some circumstances.

Furthermore, as our existing contracts expire, we may be unable to secure new contracts for our rigs.

Therefore, revenues recorded in future periods could differ materially from our current backlog.

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, 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.

Some of our customers have consolidated and could use their size and purchasing power to achieve economies of scale and pricing concessions.

In addition, certain of our customers are increasingly focusing their business strategy on renewable energy projects and away from oil and gas exploration and production.

Such customer consolidation and strategic transitions could result in reduced capital spending by such customers, decreased demand for our drilling services, loss of competitive position and negative pricing impacts.

If we cannot maintain service and pricing levels for existing customers or replace such revenues with increased business activities from other customers, our results of operations or financial condition will be negatively impacted.

Rig reactivation, upgrade and enhancement projects are subject to risks, including delays and cost overruns, which could have a material adverse effect on our financial position, operating results or cash flows.

The costs required to reactivate a stacked rig and return the rig to drilling service are significant.

Depending on the length of time that a rig has been stacked, we may incur significant costs to restore the rig to drilling capability, which may also include capital expenditures due to, among other things, technological obsolescence or an equipment overhaul of the rig.

During 2022, we currently anticipate that we will be reactivating four floater rigs.

These drilling rigs were previously stacked, and expenditures will be required to return these rigs to drilling service.

In the future, market conditions may not justify these types of expenditures or enable us to operate our rigs profitably during the remainder of their economic lives.

In addition, we may not recover the expenditures incurred to reactivate rigs through the associated drilling contract or otherwise.

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.

During periods of increased rig reactivation, upgrade and enhancement 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.

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

Other unexpected difficulties, including equipment failures, design or engineering problems, could result in significant downtime at reduced or zero day rates or the cancellation or termination of drilling contracts.

Rig reactivation, upgrade, life extension and repair projects are subject to the risks of delay or cost overruns, including the following:

• failure of third-party equipment to meet quality and/or performance standards,

• delays in equipment deliveries or shipyard construction,

• shortages of materials or skilled labor,

• disruptions occurring as the result of COVID-19 and related public health measures implemented by governments worldwide,

• damage to shipyard facilities, including damage resulting from fire, explosion, flooding, severe weather, terrorism, war or other armed hostilities,

• unforeseen design or engineering problems, including those relating to the commissioning of newly designed equipment,

• unanticipated actual or purported change orders,

• strikes, labor disputes or work stoppages,

• financial or operating difficulties of equipment vendors or the shipyard while enhancing, upgrading, improving or repairing a rig or rigs,

• unanticipated cost increases,

• foreign currency exchange rate fluctuations impacting overall cost,

• inability to obtain the requisite permits or approvals,

• client acceptance delays,

• disputes with shipyards and suppliers,

• latent damages or deterioration to hull, equipment and machinery in excess of engineering estimates and assumptions,

• claims of force majeure events, and

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

We have historically made substantial expenditures to meet customer requirements, 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.

We have historically made substantial expenditures to maintain our fleet.

These expenditures could increase as a result of changes in:

• offshore drilling technology,

• the cost of labor and materials,

• customer requirements,

• fleet size,

• the cost of replacement parts for existing drilling rigs,

• the geographic location of the drilling rigs,

• length of drilling contracts,

• governmental regulations and maritime self-regulatory organization and technical standards relating to safety, security or the environment, and

• industry standards.

Changes in offshore drilling technology, customer requirements for new or upgraded equipment, such as equipping the VALARIS DS-11 with 20,000 psi well-control equipment, and competition within our industry may require us to make significant capital expenditures.

In addition, changes in governmental regulations relating to decarbonization, environmental, emissions, safety or equipment standards, as well as compliance with standards imposed by maritime self-regulatory organizations, may require us to make additional unforeseen capital expenditures.

In addition, commitments made by us, or our customers, to reduce emissions, or decarbonize, may require us to upgrade or retrofit our drilling rigs with additional equipment, less carbon intensive equipment or instrumentation.

As a result, we may be required to take our drilling rigs out of service for extended periods of time, with corresponding losses of revenues, in order to make such alterations or to add such equipment.

In the future, market conditions may not justify these expenditures or enable us to operate our drilling rigs profitably during the remainder of their economic useful lives.

Additionally, in order to expand our fleet, we may require additional capital in the future.

If we are unable to fund capital requirements 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 restrictive covenants in our debt agreements, bye-laws and regulations 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.

If we raise funds by issuing equity securities, existing shareholders may experience dilution, and if we raise funds by issuing additional debt securities, we may have to pledge some, or all, of our assets as collateral.

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.

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, and our rig reactivation program will require that we hire additional skilled personnel.

Competition for the labor required for drilling operations and construction projects has recently intensified as the number of active drilling rigs has increased, potentially leading to shortages of qualified personnel in the industry.

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

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

As demand for our services has increased, competition for labor has intensified, resulting in higher wages in order to retain qualified offshore personnel.

The increase in wages causes an increase in operating expenses, with a resulting reduction in net income, and our ability to fully staff and operate our drilling rigs may be negatively affected.

In addition, due to the specialized skills and qualifications required to operate an offshore drilling rig, new personnel that we hire may need to undergo training to develop the skills needed to perform their job duties.

There can be no assurance that our training programs will be adequate for these purposes, which could expose us to operational hazards and risks.

We may also incur additional training costs to ensure that new or promoted personnel have the right skills and qualifications.

In an environment where competition for labor is intense, we may be required to increase existing levels of compensation to retain our skilled workforce, especially if our competitors raise their wage rates.

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

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

Our shared service center may not create the operational efficiencies that we expect, and may create risks relating to the processing of transactions and recording of financial information, which could have an adverse effect on our financial condition, operating results or cash flows.

We have undertaken a shared service center initiative pursuant to which we are outsourcing certain finance, human resources, supply chain and IT functions.

We have and will continue to align the design and operation of our financial control environment as part of our shared service center initiative.

As part of this initiative, we are outsourcing, and will continue to outsource, certain accounting, payroll, human resources, supply chain and IT functions to a third-party service provider.

The party that we utilize for these services may not be able to handle the volume of activity or perform the quality of service necessary to support our operations.

The failure of the third-party to fulfill its obligations could disrupt our operations.

In addition, the move to a shared service environment, including our reliance on a third-party provider, may create risks relating to the processing of transactions and recording of financial information.

We could experience a lapse in the operation of internal controls due to turnover, lack of legacy knowledge, inappropriate training and use of a third-party provider, which could result in significant deficiencies or material weaknesses in our internal control over financial reporting and have an adverse effect on our financial condition, operating results or cash flows.

We may not realize the expected benefits of ARO, 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.

Our 50/50 joint venture with Saudi Aramco, ARO, has plans to purchase 20 newbuild jackup rigs over an approximate 10-year period.

In January 2020, ARO ordered the first two newbuild jackups.

The first rig is expected to be delivered in the fourth quarter of 2022, and the second rig is expected either late in the fourth quarter of 2022 or in the first quarter of 2023.

ARO is expected to place orders for two additional newbuild jackups 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.

We may also experience difficulty in 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.

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 2017 and 2018, Rowan Companies Limited (formerly Rowan Companies plc) ("Rowan") issued 10-year shareholder notes receivables to ARO, which are governed by the laws of Saudi Arabia, earn interest based on a one-year LIBOR rate, set as of the end of the year prior to the year applicable, plus two percent and mature during 2027 and 2028.

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.

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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, 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-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.

We may have difficulty obtaining or maintaining insurance in the future on terms we find acceptable and our insurance coverage may not protect us against all of the risks and hazards we face, including those specific to offshore operations.

Our operations are subject to hazards inherent in the offshore drilling industry, such as blow-outs, reservoir damage, loss of production, loss of well-control, uncontrolled formation pressures, lost or stuck drill strings, equipment failures and mechanical breakdowns, punchthroughs, craterings, industrial accidents, fires, explosions, oil spills and pollution.

These hazards can cause personal injury or loss of life, severe damage to or destruction of property and equipment, pollution or environmental damage, which could lead to claims by third parties or customers, suspension of operations and contract terminations.

Our fleet is also subject to hazards inherent in marine operations, either while on-site or during mobilization, such as punch-throughs, capsizing, sinking, grounding, collision, damage from severe weather and marine life infestations.

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

We depend on technologies, systems and networks to conduct our offshore operations and help run our financial and onshore operations functions, including the collection of payments from customers, payments to vendors and employees and storage of company records.

Our information technology and infrastructure may fail or be subject to flaws that could adversely impact our business.

In addition, despite our security measures, we could be vulnerable to attacks by third-parties or breaches due to employee error, malfeasance or other disruptions.

The risks associated with the failure of our computer systems and cyber incidents and attacks on our information technology systems could include disruptions of certain systems on our rigs;

other impairments of our ability to conduct our operations, including disruptions in our ability to make or receive payments and financial and onshore operating functions, loss of intellectual property, proprietary information, customer and vendor data or other sensitive information;

corruption or unauthorized release of our or our customer’s critical data;

disruption of our or our customers' operations;

and increased costs to prevent, respond to or mitigate cybersecurity events.

Any such breach or attack could result in injury to people, loss of control of, or damage to, our, or our customer's, assets, downtime, loss of revenue or harm to the environment.

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 significant fines, civil and/or criminal claims or proceedings.

Laws and regulations governing data privacy and the unauthorized disclosure of confidential or protected information, including the European Union General Data Protection Regulation, pose increasingly complex compliance challenges and potential costs, and any failure to comply with these laws and regulations could result in significant penalties and legal liability.

Disruption to our operations and damage to our reputation 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 can be no assurance that such impacts will not be material in the future.

There can also be no assurance that our efforts, or the efforts of our partners and vendors, to invest in the protection of information technology infrastructure and data will prevent or identify breaches in our systems.

We may have difficulty obtaining or maintaining insurance in the future on terms we find acceptable and our insurance coverage cannot protect us against all of the risks and hazards we face, including those specific to offshore operations.

Our operations are subject to hazards inherent in the offshore drilling industry, such as blow-outs, reservoir damage, loss of production, loss of well-control, uncontrolled formation pressures, lost or stuck drill strings, equipment failures and mechanical breakdowns, punch-throughs, craterings, industrial accidents, fires, explosions, oil spills and pollution.

These hazards can cause personal injury or loss of life, severe damage to or destruction of property and equipment, pollution or environmental damage, which could lead to claims by third-parties or customers or prosecution by governmental authorities, suspension of operations and contract terminations.

Our fleet is also subject to hazards inherent in marine operations, either while on-site or during mobilization, such as punch-throughs, capsizing, sinking, grounding, mooring failures, collision, damage from severe weather and marine life infestations.

We have safety processes in place in an effort to mitigate the risks of the above hazards occurring, but our processes may not be effective to fully eliminate these risks or may not be followed.

Additionally, a cyber-attack or other security breach of our information systems or other technological failure could lead to a material disruption of our operations, information systems and/or loss of business information, which could result in an adverse impact to our business.

Our drilling contracts provide for varying levels of indemnification from our customers, including with respect to well-control and subsurface risks.

For example, most of our drilling contracts incorporate a broad exclusion that limits the customer's indemnity rights for damages and losses resulting from our gross negligence and willful misconduct and for fines and penalties and punitive damages levied or assessed directly against us.

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 deductibles 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 terrorist acts or strikes.

For example, most of our drilling contracts include limitations in the form of liability caps for damages and losses resulting from our gross negligence and willful misconduct and for fines and penalties and punitive damages levied or assessed directly against us.

We generally identify and assess the operational hazards for which we will procure insurance coverage based on the likelihood of loss, the potential magnitude of loss, the cost, availability and reliability of insurance 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, it is not possible to obtain insurance against all potential risks and hazards, nor may it always be possible to maintain the same levels and types of coverage that we have maintained in the past.

Cyclical insurance market conditions, major insurance losses, changes in the perceived risk exposure, new regulations, changes in our financial position and/or our operating conditions 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 deploy or demand significantly higher premiums or deductibles to cover these risks.

Additionally, a significant number of high cost energy-related insurance claims or natural catastrophes such as floods, windstorms or earthquakes may result in withdrawal of insurance capacity and increasing premiums to energy industry companies.

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

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

Uninsured exposures may include radiation hazards, certain loss or damage to property onboard our drilling rigs, loss of hire and losses relating to terrorist acts or strikes and some cyber events.

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.

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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 jack-up rigs in the U.S.

Gulf of Mexico than most of our competitors.

We had four jackup rigs and four floaters 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.

We had 10 rigs in the U.S.

Gulf of Mexico as of December 31, 2021.

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.

Damage caused by high winds and turbulent seas could result in personal injury, 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.

Moreover, even if our drilling rigs are not directly damaged by such storms, we may experience disruptions in our operations due to damage to our customers' platforms and other related facilities in the area.

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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 have not purchased 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 drilling rigs 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 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.

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

Gulf of Mexico for the aforementioned reasons.

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

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

Gulf of Mexico.

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

We have established operational procedures designed to mitigate risk to our drilling rigs 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.

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Gulf of Mexico.

Our annual insurance policies are up for renewal effective May 31, 2021, and any retained exposures for property loss or damage and wreckage and debris removal or other liabilities associated with U.S.

Any retained exposures for property loss or damage and wreckage and debris removal or other liabilities associated with U.S.

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.

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 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.

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.

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Such developments have caused instability in the world’s financial and insurance markets in the past.

In addition, these developments could lead to increased volatility in prices for oil and natural gas and could affect the markets for our services, particularly to the extent that such events take place in regions with significant oil and natural gas reserves, refining facilities or transportation infrastructure, such as the Persian Gulf area.

Insurance premiums could increase and coverage for these kinds of events may be unavailable in the future.

Any or all of these effects could have a material adverse effect on our financial position, operating results or cash flows.

Rig construction, upgrade, enhancement and reactivation projects are subject to risks, including delays and cost overruns, which could have a material adverse effect on our financial position, operating results or cash flows.

We currently have two ultra-deepwater drillships under construction.

In the future, we may construct additional rigs and continue to upgrade the capability and extend the service lives of our existing rigs.

As a result of current market conditions, we may seek to delay delivery of our rigs under construction.

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.

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.

Rig construction, upgrade, life extension and repair projects are subject to the risks of delay or cost overruns inherent in any large construction project, including the following:

• failure of third-party equipment to meet quality and/or performance standards,

• delays in equipment deliveries or shipyard construction,

• shortages of materials or skilled labor,

• damage to shipyard facilities or construction work-in-progress, including damage resulting from fire, explosion, flooding, severe weather, terrorism, war or other armed hostilities,

• unforeseen design or engineering problems, including those relating to the commissioning of newly designed equipment,

• unanticipated actual or purported change orders,

• strikes, labor disputes or work stoppages,

• financial or operating difficulties of equipment vendors or the shipyard while constructing, enhancing, upgrading, improving or repairing a rig or rigs,

• unanticipated cost increases,

• foreign currency exchange rate fluctuations impacting overall cost,

• inability to obtain the requisite permits or approvals,

• client acceptance delays,

• disputes with shipyards and suppliers,

• latent damages or deterioration to hull, equipment and machinery in excess of engineering estimates and assumptions,

• claims of force majeure events, and

• 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 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.

Depending on the length of time that a rig has been stacked, we may incur significant costs to restore the rig to drilling capability, which may also include capital expenditures due to the possible technological obsolescence of the rig.

In the future, market conditions may not justify these expenditures or enable us to operate our older rigs profitably during the remainder of their economic lives.

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 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 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.

We may be required to maintain or increase existing levels of compensation to retain our skilled workforce, especially if our competitors raise their wage rates.

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

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 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.

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

These expenditures could increase as a result of changes in:

• offshore drilling technology,

• the cost of labor and materials,

• customer requirements,

• fleet size,

• the cost of replacement parts for existing drilling rigs,

• the geographic location of the drilling rigs,

• length of drilling contracts,

• governmental regulations and maritime self-regulatory organization and technical standards relating to safety, security or the environment, and

• industry standards.

Changes in offshore drilling technology, customer requirements for new or upgraded equipment and competition within our industry may require us to make significant capital expenditures in order to maintain our competitiveness.

In addition, changes in governmental regulations relating to safety or equipment standards, as well as compliance with standards imposed by maritime self-regulatory organizations, may require us to make additional unforeseen capital expenditures.

As a result, we may be required to take our rigs out of service for extended periods of time, with corresponding losses of revenues, in order to make such alterations or to add such equipment.

In the future, market conditions may not justify these expenditures or enable us to operate our older rigs profitably during the remainder of their economic useful lives.

Additionally, in order to expand our fleet, we may require additional capital in the future.

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.

If we raise funds by issuing equity securities, existing shareholders may experience dilution.

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.

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 15 drilling 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, in certain cases, the risk of early termination of the contract for convenience (without cause), exercisable upon advance notice to us, contractually or by governmental action, without making an early termination payment to us.

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 drilling rigs contracted to national oil companies with commensurate additional contractual risks.

Unionization efforts and labor regulations in certain countries in which we operate could materially increase our costs or limit our flexibility with regard to the management of our personnel.

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.

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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.

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.

Significant equipment or part 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.

Our reliance on third-party suppliers, manufacturers and service providers to secure equipment, parts, components and sub-systems used in our operations exposes us to potential volatility in the quality, prices and availability of such items.

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 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.

The business environment since the 2014 downturn as well as industry consolidation has reduced the number of available suppliers, and our suppliers have been and may continue to be impacted by supply chain and logistics disruptions that began during the COVID-19 pandemic.

A disruption in the deliveries from such third-party suppliers, manufacturers or service providers, capacity constraints, production disruptions, price increases, including those related to inflation and supply chain disruption, quality control issues, recalls or other decreased availability of parts and equipment could adversely affect our ability to meet our commitments to customers by making it cost prohibitive to do so, thus adversely impacting our operations and revenues and/or our operating costs.

Delays in the delivery of critical drilling equipment could cause unscheduled operational downtime, or such delays could cause our drilling rigs to be unavailable within the commencement window established by the operator in the contract and subject us to potential termination of the contract for such late delivery of the drilling rig.

We may incur impairments as a result of future declines in demand for offshore drilling rigs.

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 Predecessor has recorded pre-tax, non-cash losses on impairment of long-lived assets totaling $9.8 billion, including $ 756.5 million aggregate pre-tax, non-cash impairments with respect to certain floaters, jackups and spare equipment, which Predecessor recorded during the first quarter of 2021.

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

Financial Statements and Supplementary Data" for additional information.

Our long-term contracts are subject to the risk of cost increases, which could adversely impact our profitability.

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Moreover, as our rigs are mobilized from one geographic location to another, the labor and other operating and maintenance costs can vary significantly.

In general, labor costs increase primarily due to higher salary levels and inflation.

Equipment maintenance expenses fluctuate depending upon the type of activity a drilling rig is performing and the age and condition of the equipment.

In general, labor costs increase primarily due to higher salary levels in a particular geographic location and inflation.

Equipment maintenance expenses fluctuate depending upon the type of activity a drilling rig is performing and the age and condition of the equipment, as well as the impact of supply chain disruptions and inflation on the costs of parts and materials.

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

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.

Despite our security measures, our information technology and infrastructure may be vulnerable to attacks by hackers or breached due to employee error, malfeasance or other disruptions.

The risks associated with cyber incidents and attacks on our information technology systems could include disruptions of certain systems on our rigs;

other impairments of our ability to conduct our operations;

loss of intellectual property, proprietary information or customer and vendor data;

disruption of our or our customers' operations;

and increased costs to prevent, respond to or mitigate cybersecurity events.

Any such breach or attack could result in injury to people, loss of control of, or damage to, our (or our customer's) assets, or harm to the environment.

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 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 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.

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

GAAP, including maintaining the ability to settle the 2024 Convertible Notes entirely in shares.

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.

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.

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

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

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.

Stamp duty and/or SDRT are imposed in the U.K.

on certain transfers of chargeable securities (which include shares in companies incorporated in the U.K.) at a rate of 0.5% of the consideration paid for the transfer.

Certain transfers of shares to depositary receipt facilities or clearance systems providers are charged at a higher rate of 1.5%.

Pursuant to arrangements that we entered into with the Depository Trust Company (“DTC”), our Class A ordinary shares are eligible to be held in book entry form through the facilities of DTC.

Transfers of shares held in book entry form through DTC will not attract a charge to stamp duty or SDRT in the U.K.

A transfer of the shares from within the DTC system out of DTC and any subsequent transfers that occur entirely outside the DTC system will attract a charge to stamp duty at a rate of 0.5% of any consideration, which is payable by the transferee of the shares.

Any such duty must be paid (and the relevant transfer document stamped by Her Majesty's Revenue & Customs (“HMRC”)) before the transfer can be registered in the share register of Valaris plc.

If a shareholder decides to redeposit shares into DTC, the redeposit will attract SDRT at a rate of 1.5% of the value of the shares.

We have put in place arrangements with our transfer agent to require that shares held in certificated form cannot be transferred into the DTC system until the transferor of the shares has first delivered the shares to a depository specified by us so that SDRT may be collected in connection with the initial delivery to the depository.

Any such shares will be evidenced by a receipt issued by the depository.

Before the transfer can be registered in our share register, the transferor will also be required to provide the transfer agent sufficient funds to settle the resultant liability for SDRT, which will be charged at a rate of 1.5% of the value of the shares.

Following decisions of the European Court of Justice and the U.K.

First-tier Tax Tribunal, HMRC announced that it would not seek to apply a charge to stamp duty or SDRT on the issuance of shares (or, where it is integral to the raising of new capital, the transfer of new shares) into a depositary receipt facility or clearance system provider, such as DTC.

Further, in its 2017 Autumn Budget the U.K.

government announced that it would not reintroduce the Stamp Duty and Stamp Duty Reserve Tax 1.5% charge on the issue of shares (and transfers integral to capital raising) into overseas clearance services and depositary receipt systems following the U.K.’s exit from the European Union.

However, it is possible that the U.K.

government may change or enact laws applicable to stamp duty or SDRT, which could have a material effect on the cost of trading in our shares.

If our Class A ordinary shares are not eligible for continued deposit and clearing within the facilities of DTC, then transactions in our securities may be disrupted.

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 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, 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.

We have less flexibility as a U.K.

public limited company with respect to certain aspects of capital management than U.S.

corporations due to increased shareholder approval requirements.

Directors of Delaware and other U.S.

corporations may issue, without further shareholder approval, shares of common stock authorized in their certificates of incorporation that were not already issued or reserved.

The business corporation laws of Delaware and other U.S.

states also provide substantial flexibility in establishing the terms of preferred stock.

However, English law provides that a board of directors of a U.K.

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 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.

However, it is possible, where the board of directors is generally authorized to allot shares, to exclude pre-emption rights by a special resolution of the shareholders or by a provision in the articles of association.

Such exclusion of pre-emption rights will commonly cease to have effect at the same time as the general allotment authority to which it relates is revoked or expires.

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

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.

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.

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

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

(or the Channel Islands or the Isle of Man) and the securities of which are not admitted to trading on a regulated market in the U.K.

(or the Channel Islands or the Isle of Man) if the company is considered by the takeover panel (the "Takeover Panel") to have its place of central management and control in the U.K.

(or the Channel Islands or the Isle of Man).

This is known as the "residency test." The test for central management and control under the Code is different from that used by the U.K.

tax authorities.

Under the Code, the Takeover Panel will look to where the majority of the directors of the company are residents for the purposes of determining where the company has its place of central management and control.

Accordingly, the Takeover Panel has previously indicated that the Code does not apply to the Company and the Company's shareholders therefore do not have the benefit of the protections the Code affords, including, but not limited to, the requirement that a person who acquires an interest in shares carrying 30% or more of the voting rights in the Company must make a cash offer to all other shareholders at the highest price paid in the 12 months before the offer was announced.

English law requires that we meet certain additional financial requirements before declaring dividends and returning funds to shareholders.

Under English law, we are only able to declare dividends and return funds to our shareholders out of the accumulated distributable reserves on our statutory balance sheet.

Distributable reserves are a company’s accumulated, realized profits, so far as not previously utilized by distribution or capitalization, less its accumulated, realized losses, so far as not previously written off in a reduction or reorganization of capital duly made.

Realized profits are created through the remittance of profits of certain subsidiaries to our parent company in the form of dividends.

English law also provides that a public company can only make a distribution if, among other things (a) the amount of its net assets (that is, the total excess of assets over liabilities) is not less than the total of its called up share capital and non-distributable reserves and (b) if, and to the extent that, the distribution does not reduce the amount of its net assets to less than that total.

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 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.

Our ability to pay our operating and capital expenses and make payments due on our debt depends on many factors beyond our control.

Our ability to pay our operating and capital expenses and make payments due on our debt depends on our future performance, which will be affected by financial, business, economic, legislative and other factors, many of which are beyond our control.

The First Lien Notes contain payment-in-kind interest provisions, which reduce the cash needed to pay interest while increasing the principal amount of First Lien Notes that ultimately must be retired with a cash payment.

Our business may not generate sufficient cash flow from operations in the future, which could result in our being unable to repay indebtedness or to fund other liquidity needs.

A range of economic, competitive, business and industry factors will affect our future financial performance, and many of these factors, such as the economic and financial condition of our industry, the global economy and initiatives of our competitors, are beyond our control.

If we do not generate enough cash flow from operations to satisfy our debt obligations, we may have to undertake alternative financing plans, such as:

• selling assets;

• reducing or delaying capital investments;

• seeking to raise additional capital;

• restructuring or refinancing all or a portion of our indebtedness at or before maturity.

We cannot be assured that we will be able to accomplish any of these alternatives on terms acceptable to us or at all.

In addition, the terms of existing or future debt agreements may restrict us from adopting any of these alternatives.

The failure to generate sufficient cash flow or to achieve any of these alternatives could materially adversely affect our ability to pay the amounts due under our debt.

The indenture dated April 30, 2021 (the "Indenture") governing the First Lien Notes contains operating and financial restrictions that restrict our business and financing activities and could limit our growth.

The primary restrictive covenants contained in the Indenture governing the First Lien Notes limit our ability to, among other things:

• incur additional indebtedness or issue certain types of preferred shares;

• sell or convey certain assets;

• make loans to or investments in others;

• enter into mergers;

• engage in transactions with affiliates;

• make certain payments;

• incur liens;

• pay dividends or repurchase Common Shares.

As a result of these restrictive covenants, we will be limited in the manner in which we conduct our business, and we may be unable to engage in favorable business activities, take advantage of business opportunities or finance future operations or capital needs.

A failure to comply with these operating restrictions, as well as the other financial covenants under the First Lien Notes, would result in an event of default, which, if not cured or waived, would cause some or all of our indebtedness to become immediately due and payable and have a material adverse effect on our business, financial condition and results of operations.

On April 30, 2021, we emerged from bankruptcy, which may adversely affect our business and relationships.

Our having filed for bankruptcy and our emergence from the Chapter 11 Cases on April 30, 2021 may adversely affect our business and relationships with our vendors, suppliers, service providers, customers, employees and other third-parties.

Many risks exist as a result of the Chapter 11 Cases and our emergence, including the following:

• we may have difficulty obtaining acceptable and sufficient financing to execute our business plan;

• key suppliers, vendors and customers may, among other things, renegotiate the terms of their agreements with us, attempt to terminate their relationship with us or require financial assurances from us;

• our ability to renew existing contracts and obtain new contracts on reasonably acceptable terms and conditions may be adversely affected;

• our ability to attract, motivate and retain key employees and executives may be adversely affected;

• competitors may take business away from us, and our ability to compete for new business and attract and retain customers may be negatively impacted.

The occurrence of one or more of these events could have a material and adverse effect on our operations, financial condition and reputation.

We cannot assure you that having been subject to bankruptcy protection will not adversely affect our operations in the future.

Our actual financial results after emergence from bankruptcy may not be comparable to our projections filed with the Bankruptcy Court in the course of the Chapter 11 Cases.

In connection with the disclosure statement we filed with the Bankruptcy Court and the hearing to consider confirmation of the plan of reorganization, we prepared projected financial information to demonstrate to the Bankruptcy Court the feasibility of the plan of reorganization and our ability to continue operations upon our emergence from the Chapter 11 Cases.

Those projections were prepared solely for the purpose of the Chapter 11 Cases and have not been and will not be updated and should not be relied upon by investors.

At the time they were prepared, the projections reflected numerous assumptions concerning our anticipated future performance with respect to then prevailing and anticipated market and economic conditions that were and remain beyond our control and that may not materialize.

We have not updated the projections prepared solely for the purpose of our Chapter 11 Cases or the assumptions on which they were based after our emergence.

Projections are inherently subject to substantial and numerous uncertainties and to a wide variety of significant business, economic and competitive risks, and the assumptions underlying the projections or valuation estimates may prove to be wrong in material respects.

Actual results may vary significantly from those contemplated by the projections.

As a result, investors should not rely on these projections.

Our historical financial information will not be indicative of future financial performance as a result of the implementation of the plan of reorganization and the related transactions, as well as our application of fresh start accounting following emergence.

Our capital structure was significantly impacted by the plan of reorganization.

Under fresh start accounting rules that we applied on the Effective Date, assets and liabilities were adjusted to fair values and our accumulated deficit was reset to zero.

Accordingly, as a result of the application of fresh start accounting, our financial condition and results of operations following emergence from the Chapter 11 Cases are not comparable to the financial condition and results of operations reflected in our historical financial statements on or prior to the Effective Date.

The exercise of all or any number of outstanding warrants or the issuance of stock-based awards may dilute the holders of our Common Shares.

On the Effective Date, we issued 75,000,000 Common Shares and 5,645,161 warrants to purchase 5,645,161 Common Shares at an exercise price of $131.88 per share, exercisable for a seven year period commencing on that date.

Additionally, on May 3, 2021, our board of directors approved and ratified the Valaris Limited 2021 Management Incentive Plan (the “MIP”) and reserved 8,960,573 of our Common Shares for issuance under the MIP primarily for employees and directors.

The grant and vesting of equity awards in the future, any exercise of the warrants into Common Shares and any sale of Common Shares underlying outstanding warrants would have a dilutive effect to the holdings of our existing shareholders and could have an adverse effect on the market for our Common Shares, including the price that an investor could obtain for their Common Shares.

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 U.S.

and 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, the Katowice climate conference in December 2018 and the COP26 UN Climate Change Conference in November 2021.

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 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 drilling 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 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 trade-offs that inevitably occur in connection with such processes.

Consumer preferences for alternative fuels and electric-powered vehicles, as part of the global energy transition, may lead to reduced demand for our services.

The increasing penetration of renewable energy into the energy supply mix, the increased production of electric-powered vehicles and improvements in energy storage, as well as changes in consumer preferences, including increased consumer demand for alternative fuels, energy sources and electric-powered vehicles may affect the demand for oil and natural gas and our drilling services.

This evolving transition of the global energy system from fossil-based systems of energy production and consumption to more renewable energy sources, commonly referred to as the energy transition, could have a material adverse impact on our results of operations, financial position and cash flows.

As a result of changes in consumer preferences and uncertainty regarding the pace of the energy transition and expected impacts on oil and natural gas demand, some of our customers are transitioning their businesses to renewable energy projects and away from oil and natural gas exploration and production, which could result in reduced capital spending by such customers on oil and natural gas projects and in turn reduced demand for our services.

Increased scrutiny from stakeholders and others regarding climate change, as well as our ESG practices and reporting responsibilities, could result in additional costs or risks and adversely impact our business and reputation.

In recent years the investment community, including investment advisors and certain sovereign wealth, pension and endowment funds, has promoted the divestment of fossil fuel equities and pressured lenders to cease or limit funding to companies engaged in the extraction of fossil fuel reserves.

Such initiatives aimed at limiting climate change and decarbonization could ultimately interfere with our business activities and operations and our access to capital.

In addition to such initiatives, ESG matters more generally have been the subject of increased focus by investors, investment funds and other market and industry participants, as well as certain regulators, including in the U.S.

We publish an annual Sustainability Report, which includes disclosure of our ESG practices and goals.

We published our 2020 Sustainability Report in September 2021.

Our disclosures on these matters, a failure

to meet these goals or evolving stakeholder expectations for ESG practices and reporting may potentially harm our reputation and impact employee retention, customer relationships and access to capital.

For example, certain market participants use third-party benchmarks or scores to measure a company’s ESG practices in making investment decisions and customers and suppliers may evaluate our ESG practices or require that we adopt certain ESG policies as a condition of awarding contracts.

By electing to set and share publicly our corporate ESG standards, our business may also face increased scrutiny related to ESG activities.

As ESG best-practices and reporting standards continue to develop, we may incur increased costs related to ESG monitoring and reporting and complying with ESG initiatives.

In addition, it may be difficult or expensive for us to comply with any ESG-linked contracting policies adopted by customers and suppliers, particularly given the complexity of our supply chain and our reliance on third-party manufacturers.

Regulatory, Legal and Tax Risks

Failure to comply with anti-bribery statutes 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.

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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.

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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 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.

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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.

Increases in regulatory requirements 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.

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.

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 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.

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.

Business – Governmental Regulations and Environmental Matters.”

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.

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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.

Business – Governmental Regulations and Environmental Matters.”

ESG initiatives and high profile and catastrophic events, including the 2010 Macondo well incident, have increased the regulation of offshore oil and gas drilling.

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.

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.

In addition, in recent years the investment community, including investment advisors and certain sovereign wealth, pension and endowment funds, has promoted the divestment of fossil fuel equities and pressured lenders to cease or limit funding to companies engaged in the extraction of fossil fuel reserves.

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

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.

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.

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.

Although Valaris Limited is incorporated in Bermuda (and thus would generally be considered a “foreign” corporation (or non-U.S.

tax resident)), the U.S.

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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).

tax resident) pursuant to the rules under Section 7874 of the Internal Revenue Code.

While we do not believe we are a U.S.

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

factual uncertainties.

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.

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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.

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.

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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.

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 are a Bermuda company and it may be difficult to enforce judgments against us or our directors and executive officers.

We are a Bermuda exempted company.

As a result, the rights of holders of our Common Shares are governed by Bermuda law and our memorandum of association and bye-laws.

The rights of shareholders under Bermuda law may differ from the rights of shareholders of companies incorporated in other jurisdictions.

Some of our directors and officers are not residents of the United States, and a substantial portion of our assets are located outside the United States.

As a result, it may be difficult for investors to effect service of process on those persons in the United States or to enforce in the United States judgments obtained in U.S.

courts against us or those persons based on the civil liability provisions of the U.S.

securities laws.

It is doubtful whether courts in Bermuda will enforce judgments obtained in other jurisdictions, including the United States, against us or our directors or officers under the securities laws of those jurisdictions or entertain actions in Bermuda against us or our directors or officers under the securities laws of other jurisdictions.

Our bye-laws restrict shareholders from bringing legal action against our officers and directors.

Our bye-laws contain a broad waiver by our shareholders of any claim or right of action, both individually and on our behalf, against any of our officers or directors.

The waiver applies to any action taken by an officer or director, or the failure of an officer or director to take any action, in the performance of his or her duties, except with respect to any matter involving any fraud or dishonesty on the part of the officer or director.

This waiver limits the right of shareholders to assert claims against our officers and directors unless the act or failure to act involves fraud or dishonesty.

Provisions in our bye-laws could delay or prevent a change in control of our company, which could adversely affect the price of our Common Shares.

The existence of some provisions in our bye-laws could delay or prevent a change in control of our company that a shareholder may consider favorable, which could adversely affect the price of our Common Shares.

Certain provisions of our bye-laws could make it more difficult for a third-party to acquire control of our company, even if the change of control would be beneficial to our shareholders.

These provisions include:

• authority of our board to determine its size;

• the ability of our board of directors to issue preferred shares without shareholder approval;

• limitations on the removal of directors;

• limitations on the ability of our shareholders to act by written consent in lieu of a meeting.

In addition, our bye-laws establish advance notice provisions for shareholder proposals and nominations for elections to the board of directors to be acted upon at meetings of shareholders.

Our business could be affected as a result of activist investors.

Publicly traded companies have increasingly become subject to campaigns by activist investors advocating corporate actions such as actions related to environment, social and governance (“ESG”) matters, financial restructuring, increased borrowing, dividends, share repurchases or even sales of assets or the entire company.

Publicly traded companies have increasingly become subject to campaigns by activist investors advocating corporate actions such as actions related to ESG matters, financial restructuring, increased borrowing, dividends, share repurchases or sales of assets or even the entire company.

Responding to proxy contests and other actions by such activist investors or others in the future could be costly and time-consuming, disrupt our operations and divert the attention of our Board of Directors and senior management from the pursuit of our business strategies, which could adversely affect our results of operations and financial condition.

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Revenues from non-U.S.

operations were 83%, 85% and 87% of our total consolidated revenues during 2020, 2019 and 2018, respectively.

operations were 87%, 81%, 83% and 85% of our total consolidated revenues during eight months ended December 31, 2021 (Successor), four months ended April 30, 2021 (Predecessor), year-ended December 31, 2020 and 2019 (Predecessor), respectively.

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

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• 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,

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

• changes in the manner or rate of taxation,

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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.

In circumstances where we have insurance protection for some or all of the risks 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.

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.

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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.

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

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

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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.

We have historically used foreign currency forward contracts to reduce this exposure in certain cases.

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

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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.

Governments in some countries are active in regulating and controlling the ownership of oil, natural gas and mineral concessions and companies holding such 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.

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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.

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.

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

Legislation enacted in Bermuda as to Economic Substance may affect our operations.

Pursuant to the Economic Substance Act 2018 (as amended) of Bermuda (the “ES Act”) that came into force on January 1, 2019, a registered entity other than an entity which is resident for tax purposes in certain jurisdictions outside Bermuda (“non-resident entity”) that carries on as a business any one or more of the “relevant

activities” referred to in the ES Act must comply with economic substance requirements.

The ES Act may require in-scope Bermuda entities which are engaged in such “relevant activities” to be directed and managed in Bermuda, have an adequate level of qualified employees in Bermuda, incur an adequate level of annual expenditure in Bermuda, maintain physical offices and premises in Bermuda or perform core income-generating activities in Bermuda.

The list of “relevant activities” includes carrying on any one or more of:

banking, insurance, fund management, financing, leasing, headquarters, shipping, distribution and service center, intellectual property and holding entities.

The ES Act could affect the manner in which we operate our business, which could adversely affect our business, financial condition and results of operations.

The U.K.'s 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 provided for the U.K.’s withdrawal to be followed by a “transition period”, during which, in summary, the U.K.

was not a member of the E.U.

but most E.U.

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

During the transition period, the U.K.

sought 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 expired on December 31, 2020.

On December 24, 2020, the European Commission and the United Kingdom reached agreement on the terms of the U.K.’s future relationship with the E.U.

(the “Trade and Cooperation Agreement”).

As negotiations concerning the terms of the Trade and Cooperation Agreement could only be finalized shortly before the expiry of the transition period, the European Commission has determined to apply the Trade and Cooperation Agreement provisionally with effect from January 1, 2021, until it can be formally ratified by the European Union.

This will require the European Parliament to give its consent to the Trade and Cooperation Agreement and the Council of the European Union to adopt a formal decision on its conclusion.

It is currently expected that such processes will be completed during the first quarter of 2021.

Many of the practical effects of the Trade and Cooperation Agreement will only become clear with the passage of time and at present it is not possible for us to estimate with certainty whether its implementation will have a material adverse effect on our financial position, operating results or cash flows.

While the Trade and Cooperation Agreement provides for zero tariffs and quotas on the movement of goods between the U.K.

(provided they comply with the parties’ agreed rules of origin) and also seeks to minimize trade disruption arising from technical and administrative barriers to trade, there can be no guarantee that the implementation of the Trade and Cooperation Agreement will not lead to significant increased costs and supply chain disruption for our business and the businesses of our U.K.

On April 27, 2021, the European Parliament approved the agreement on the terms of the U.K.’s future relationship with the E.U.

(the “Trade and Cooperation Agreement”), which provides for zero tariffs and quotas on the movement of goods between the U.K.

(provided they comply with the parties’ agreed rules of origin) and seeks to minimize trade disruption arising from technical and administrative barriers to trade.

However, there can be no guarantee that the ongoing implementation of the Trade and Cooperation Agreement will not lead to significant increased costs and supply chain disruption for our business and the businesses of our U.K.

customers and suppliers.

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The implementation of the Trade and Cooperation Agreement and/or any subsequent divergence of the law applicable in the U.K.

could depress economic activity, result in changes to currency exchange rates, 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 15% of our total revenues were generated in the U.K.

for the year ended December 31, 2020.

Approximately 22% and 19% of our total revenues were generated in the U.K.

for the eight months ended December 31, 2021 (Successor) and four months ended April 30, 2021 (Predecessor), respectively.

Unresolved Staff Comments

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

What changed 10-K

Item 1A. Risk Factors