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”). The U.K. will continue to be a member of the E.U. until the expiration of a two-year notice period, following the U.K.’s formal notification to the European Council under Article 50 of the Treaty on European Union (which occurred on March 29, 2017), or until such other date as is agreed by all 28 member states of the E.U., unless prior to any such date the U.K. elects to revoke its formal Article 50 notification to the European Council. While the U.K. government and the European Commission have agreed to the terms of a withdrawal agreement, on January 16, 2019, the U.K. Parliament voted against the withdrawal agreement in its current form. There is currently no certainty that the withdrawal agreement will be ratified by, in particular, the U.K. Parliament or the European Parliament or the European Council. Consequently, the terms on which, and the date on which, the U.K. will withdraw from the E.U. (if at all) remain difficult to predict. In addition, it is expected that, if and when the U.K. withdraws from the E.U., the U.K. and the E.U. will hold further negotiations seeking to establish the terms of the long-term trading relationship between the U.K. and the E.U.

The referendum and the political negotiation surrounding the terms of the U.K.’s withdrawal from the E.U. have created significant uncertainty about the future relationship between the U.K. and the E.U., including with respect to the laws and regulations that will apply. This is because if the U.K. withdraws from the E.U. (and subject to the terms of any withdrawal agreement), the U.K. will determine which E.U.-derived laws to replace or replicate in the event of a withdrawal. The referendum has also given rise to calls for the governments of other E.U. member states to consider withdrawal, while the U.K.’s withdrawal negotiation process has increased the risk of governmental change in the U.K. as well as the possibility of a further referendum concerning Scotland’s independence from the rest of the U.K.

If no withdrawal agreement is reached by March 29, 2019, the U.K.’s membership of the E.U. could terminate under a so-called “hard Brexit.” Under this scenario, there could be increased costs from the imposition of tariffs on trade or non-tariff barriers between the U.K. and E.U., shipping delays because of the need for customs inspections and temporary shortages of certain goods. Any of the foregoing might cause our U.K. suppliers to pass along these increased costs, if realized, to us in the U.K. In addition, trade and investment between the U.K., the E.U. and other countries would be impacted by the fact that the U.K. currently operates under tax and trade treaties concluded between the E.U. and other countries. Following a “hard Brexit”, the U.K. would need to negotiate its own tax and trade treaties with other countries, as well as with the E.U. Any new, or changes to existing, U.K. tax laws could make the U.K. a

less desirable jurisdiction of incorporation for our parent company, Ensco plc. In addition, one of our U.K. subsidiaries owns two jackup rigs, and following a “hard Brexit,” the E.U. might require some form of importation fee or guarantee on certain U.K. owned rigs that operate outside U.K. waters.

These developments, or the perception that any of them could occur, have had and may continue to have a material adverse effect on global, regional and/or national economic conditions and the stability of global financial markets, and may significantly reduce global market liquidity and restrict the ability of key market participants to operate in certain financial markets. Any of these factors could depress economic activity, result in changes to currency exchange rates, tariffs, treaties, taxes, import/export regulations, laws and other regulatory matters, and/or restrict our access to capital and the free movement of our employees, which could have a material adverse effect on our financial position, operating results or cash flows. Approximately 11% of our total revenues were generated in the U.K. for the year ended December 31, 2018.

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 ~~that~~of early termination of the contract ~~may be terminated by our customer without cause on short-term~~for convenience (without cause), exercisable upon advance notice to us, contractually or by governmental action, ~~under certain conditions that may not provide us with~~without making an early termination ~~payment.~~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. Efforts have been made from time to time to unionize other portions of our workforce. In addition, we have been subjected to strikes or work stoppages and other labor disruptions in certain countries. Additional unionization efforts, new collective bargaining agreements or work stoppages could materially increase our costs, reduce our revenues or limit our flexibility.

Certain legal obligations require us to contribute certain amounts to retirement funds or other benefit plans and restrict our ability to dismiss employees. Future regulations or court interpretations established in the countries in which we conduct our operations could increase our costs and materially adversely affect our business, financial position, operating results or cash flows.

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. 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.

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 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.

In general, our costs increase as the demand for contract drilling services and skilled labor increases. While some of our contracts include cost escalation provisions that allow changes to our day rate based on stipulated cost increases or decreases, the timing and amount earned from these day rate adjustments may differ from our actual increase in costs and many contracts do not allow for such day rate adjustments. During times of reduced demand, reductions in costs may not be immediate as portions of the crew may be required to prepare our rigs for stacking, after which time the crew members are assigned to active rigs or dismissed. 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 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 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 ~~suspend~~to fund other liquidity needs. A range of economic, competitive, business and industry factors will affect our ~~dividend~~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; or

•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; and

•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; and

•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 ~~Board~~actual financial results after emergence from bankruptcy may not be comparable to our projections filed with the Bankruptcy Court in the course of ~~Directors declared~~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 ~~$0.01 quarterly cash dividend~~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 ~~Class A ordinary~~ share, exercisable for ~~each quarter during 2016, 2017~~a seven year period commencing on that date. Additionally, on May 3, 2021, our board of directors approved and ~~2018. In~~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, ~~our Board~~any exercise of ~~Directors may, without advance notice, reduce or suspend our dividend in order~~the warrants into Common Shares and any sale of Common Shares underlying outstanding warrants would have a dilutive effect to ~~improve our financial flexibility and best position us for long-term success. The declaration and amount of future dividends is at~~ the ~~discretion~~holdings of our ~~Board~~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.

ESG Risks

Regulation of ~~Directors~~greenhouse gases and ~~will depend~~climate change could have a negative impact on our ~~profitability, liquidity,~~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 ~~condition, market outlook, reinvestment opportunities,~~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 changesin 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 transitionand 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 ~~requirements, restrictions~~spending by such customers on oil and ~~limitations~~natural gas projects and in turn reduced demand for our ~~credit facility~~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 ~~debt documents~~market and ~~other factors~~industry participants, as well as certain regulators, including in the U.S. and ~~restrictions~~the EU. We publish an annual Sustainability Report, which includes disclosure of our ~~Board of Directors deems relevant. There can be no assurance~~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 ~~will pay~~adopt certain ESG policies as a ~~dividend in~~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 ~~future.~~complexity of our supply chain and our reliance on third-party manufacturers.

Regulatory, Legal and ~~regulatory proceedings~~Tax Risks

Failure to comply with anti-bribery statutes could ~~adversely affect us.~~result in fines, criminal penalties, drilling contract terminations and an adverse effect on our business.

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

We operate in a number of countries throughout the world, including countries known to have a reputation for corruption and are subject to the U.S. Foreign Corrupt Practices Act of 1977 (“FCPA”), the U.S. Treasury Department's Office of Foreign Assets Control ("OFAC") regulations, the U.K. Bribery Act ("UKBA"), other U.S. laws and regulations governing our international operations and similar laws in other countries.

During 2010, Pride International LLC ("Pride") and its subsidiaries resolved with the U.S. Department of Justice (“DOJ”) and the SEC their previously disclosed investigations into potential violations of the FCPA. However, Pride received preliminary inquiries from governmental authorities of certain of the countries referenced in its settlements with the DOJ and SEC. We could face additional fines, sanctions and other penalties from authorities in these and other relevant jurisdictions, including prohibition of our participating in or curtailment of business operations in those jurisdictions and the seizure of our rigs or other assets. At this stage of such inquiries, we are unable to determine what, if any, legal liability may result. Our customers in those jurisdictions could seek to impose penalties or take other

actions adverse to our interests. We could also face other third-party claims by directors, officers, employees, affiliates, advisors, attorneys, agents, stockholders, debt holders or other stakeholders. In addition, disclosure of the subject matter of the investigations and settlements could adversely affect our reputation and our ability to obtain new business or retain existing business from our current clients and potential clients, to attract and retain employees and to access the capital markets.

On August 29, 2018, we received a letter from the Division of Enforcement of the SEC informing us that the Division had concluded its investigation into alleged irregularities related to the drilling services agreement with Petrobras for ENSCO DS-5 (the “DSA”) and does not intend to recommend any enforcement action against us. On August 31, 2018, we received a letter from the DOJ stating that it had closed the inquiry into this matter and acknowledging our full cooperation with the investigation. See Item 1 “Legal Proceedings” in our quarterly report on Form 10-Q for the quarter ended June 30, 2018, for further information on the investigation.

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 ~~DSA.~~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.~~investigations relating to the DSA. We cooperated with the Office of the Attorney General and provided documents in response to its request. We cannot predict the scope or ultimate outcome of this procedure or whether any Brazilian governmental authority will open an investigation into Pride’s involvement in this matter, or if a proceeding were opened, the scope or ultimate outcome of any such investigation.

Any violation of the FCPA, OFAC regulations, the UKBA or other applicable anti-corruption laws by us, our affiliated entities or their respective officers, directors, employees and agents could in some cases provide a customer with termination rights and other remedies under ~~a contract~~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 or cash ~~flows or the availability of funds under our revolving credit facility.~~flows. Further, we may incur significant costs and consume significant internal resources in our efforts to detect, investigate and resolve actual or alleged violations.

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

The offshore contract drilling industry is dependent on demand for services from the oil and gas industry. Accordingly, we will be directly affected by the approval and adoption of laws and regulations limiting or curtailing exploration and development drilling for oil and natural gas for economic, environmental, safety and other policy reasons. Furthermore, we may be required to make significant capital expenditures or incur substantial additional costs to comply with new governmental laws and regulations. It is also possible that legislative and regulatory activity could adversely affect our operations by limiting drilling opportunities or significantly increasing our operating costs. Increases in regulatory requirements ~~particularly in the U.S. Gulf of Mexico,~~ could significantly increase our costs. In recent years, we have seen several significant regulatory changes that have affected the way we operate in the U.S. Gulf of Mexico.See “Item 1. Business – Governmental Regulations and Environmental Matters.”

Hurricanes Katrina and Rita in 2005 and Hurricanes Gustav and Ike in 2008 caused damage to a number of rigs in the Gulf of Mexico. Rigs that were moved off location by the storms damaged platforms, pipelines, wellheads and other drilling rigs. As a result of jackup rig fitness requirements during hurricane seasons issued by BSEE and its predecessor agency, jackup rigs in the U.S. Gulf of Mexico are required to operate with a higher air gap (the space between the water level and the bottom of the rig's hull) during hurricane season, effectively reducing the water depth in which they can operate. The guidelines also provide for enhanced information and data requirements from oil and gas companies operating in the U.S. Gulf of Mexico.

Following the 2010 Macondo well incident in the U.S. Gulf of Mexico, the U.S. Department of the Interior issued Notices to Lessees, implementing new requirements and/or guidelines that are applicable to drilling operations in the U.S. Gulf of Mexico. Current or future Notice to Lessees or other rules, directives and regulations may further impact our customers' ability to obtain permits and commence or continue deep or shallow water operations in the U.S. Gulf of Mexico. In 2016, BSEE promulgated the 2016 Well Control Rule imposing new requirements for well-control and blowout prevention equipment that could increase our costs and cause delays in our operations due to unavailability of associated equipment. In May 2018, BSEE proposed revisions to the 2016 Well Control Rule. This proposed rule would revise requirements for well design, well control, casing, cementing, real-time monitoring and subsea containment. The revisions are targeted to ensure safety and environmental protection while correcting errors in the 2016 rule and reducing certain unnecessary regulatory burdens imposed under the existing regulations. The proposed revisions have not yet been finalized.

Also, as a result of the Macondo well incident, BSEE and its predecessor agency promulgated regulations regarding SEMS. Although only operators are currently required to have a SEMS, the SEMS regulations require written agreements between operators and contractors regarding the contractors’ support of the operators' safety and environmental policies at the worksite, including requirements for personnel training and written safe work practices. In addition, BSEE has in the past stated that future rulemaking may require offshore drilling contractors to implement their own SEMS programs. The current SEMS regulations and the possibility of additional SEMS rules for contractors could expose us to increased costs.

In 2012, BSEE issued an IPD for use by BSEE inspectors in INCs to contractors operating under BSEE jurisdiction on the Outer Continental Shelf of the U.S. Gulf of Mexico. The stated purpose of the policy was to provide for consistency in application of BSEE enforcement authority by establishing guidelines for issuance of INCs to contractors in addition to operators. The policy indicated that BSEE’s enforcement actions would continue to focus primarily on lessees and operators, but that “in appropriate circumstances” BSEE also would issue INCs to contractors for “serious violations” of BSEE regulations. Following federal court decisions successfully challenging the scope of BSEE’s jurisdiction over offshore contractors, this IPD has been removed from the list of IPDs on the BSEE website. If this judicial precedent stands, it may reduce regulatory and civil litigation liability exposures.

Since 2014, the United States Coast Guard has proposed new regulations that would impose GPS equipment and positioning requirements for MODUs and jackup rigs operating in the U.S. Gulf of Mexico and issued notices regarding the development of guidelines for cybersecurity measures used in the marine and offshore energy sectors for all vessels and facilities that are subject to the MTSA, including our rigs. In 2016, BSEE adopted the 2016 Well Control Rule, which will be implemented in phases over the next several years. This new rule includes more stringent design requirements for well-control equipment used in offshore drilling operations. As described above, revisions to this rule have been proposed by BSEE, which could reduce the regulatory burden of the rule. We are continuing to evaluate the cost and effect that these new rules will have on our operations. However, based on our current assessment of the rules, we do not expect to incur significant costs to comply with the rule. Implementation of further guidelines and regulations may subject us to increased costs and limit the operational capabilities of our rigs.

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

We anticipate that government regulation in other countries where we operate may follow the U.S. in regard to enhanced safety and environmental regulation, which could also result in governments imposing sanctions on contractors when operators fail to comply with regulations that impact drilling operations. Even if not a requirement in these countries, most international operating companies, and many others, are voluntarily complying with some or all of the U.S. inspections and safety and environmental guidelines when operating outside the U.S. Such additional governmental regulation and voluntary compliance by operators could increase the cost of our operations and expose us to greater liability.

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

Our operations are subject to laws and regulations controlling the discharge of materials into the environment, pollution, contamination and hazardous waste disposal or otherwise relating to the protection of the environment. Environmental laws and regulations specifically applicable to our business activities could impose significant liability on us for damages, clean-up costs, fines and penalties in the event of oil spills or similar discharges of pollutants or contaminants into the environment or improper disposal of hazardous waste generated in the course of our operations. To date, such laws and regulations have not had a material adverse effect on our operating results, and we have not experienced an accident that has exposed us to material liability arising out of or relating to discharges of pollutants into the environment. However, the legislative, judicial and regulatory response to a well incident could substantially increase our and our customers' liabilities. In addition to potential increased liabilities, such legislative, judicial or

regulatory action could impose increased financial, insurance or other requirements that may adversely impact the entire offshore drilling industry.See “Item 1. Business – Governmental Regulations and Environmental Matters.”

~~The International Convention on Oil Pollution Preparedness, Response~~ESG initiatives 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~~high profile and catastrophic events, including the 2010 Macondo well incident, have ~~heightened governmental and environmental concerns about~~increased the ~~risks associated with~~regulation of offshore oil and gas drilling. We are adversely affected by restrictions on drilling in certain areas in which we operate, including policies and guidelines regarding the approval of drilling permits, restrictions on development and production activities, and directives and regulations that have and may further impact our operations. From time to time, legislative and regulatory proposals have been introduced that would materially limit or prohibit offshore drilling in certain areas, or that would increase the liabilities or costs associated with offshore drilling. If new laws are enacted, or if government actions are taken that restrict or prohibit offshore drilling in our principal areas of operation or that impose environmental or other requirements that materially increase the liabilities, financial requirements or operating or equipment costs associated with offshore drilling, exploration, development, or production of oil and natural gas, our financial position, operating results or cash flows could be materially adversely affected.

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

Our operations are affected by political developments and by laws and regulations that relate directly to the oil and gas industry. The offshore contract drilling industry is dependent on demand for services from the oil and gas industry. Accordingly, we will be directly affected by the approval and adoption of laws and regulations limiting or curtailing exploration and development drilling for oil and natural gas for economic, environmental, safety and other policy reasons. Furthermore, we may be required to make significant capital expenditures or incur substantial additional costs to comply with new governmental laws and regulations. It is also possible that legislative and regulatory activity could adversely affect our operations by limiting drilling opportunities or significantly increasing our operating costs.

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

Governments around the world are increasingly focused on enacting laws and regulations regarding climate change and regulation of greenhouse gases. Lawmakers and regulators in the jurisdictions where we operate have proposed or enacted regulations requiring reporting of greenhouse gas emissions and the restriction thereof, including increased fuel efficiency standards, carbon taxes or cap and trade systems, restrictive permitting, and incentives for renewable energy. In addition, efforts have been made and continue to be made in the international community toward the adoption of international treaties or protocols that would address global climate change issues and impose reductions

of hydrocarbon-based fuels, including plans developed in connection with the Paris climate conference in December 2015 and the Katowice climate conference in December 2018. Laws or regulations incentivizing or mandating the use of alternative energy sources such as wind power and solar energy have also been enacted in certain jurisdictions. Additionally, numerous large cities globally and several countries have adopted programs to mandate or incentivize the conversion from internal combustion engine powered vehicles to electric-powered vehicles and placed restrictions on non-public transportation. Such policies or other laws, regulations, treaties and international agreements related to greenhouse gases and climate change may negatively impact the price of oil relative to other energy sources, reduce demand for hydrocarbons, limit drilling in the offshore oil and gas industry, or otherwise unfavorably impact our business, our suppliers and our customers, and result in increased compliance costs and additional operating restrictions, all of which would have a material adverse impact on our business. In addition, there have also been efforts in recent years to influence the investment community, including investment advisors and certain sovereign wealth, pension and endowment funds promoting divestment of fossil fuel equities and pressuring lenders to limit funding to companies engaged in the extraction of fossil fuel reserves. Such environmental activism and initiatives aimed at limiting climate change and reducing air pollution could ultimately interfere with our business activities and operations.

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

Geopolitical events have resulted in military actions, terrorist, pirate and other armed attacks, civil unrest, political demonstrations, mass strikes and government responses. Military action by the United States or other nations could escalate, and acts of terrorism, piracy, kidnapping, extortion, acts of war, violence, civil war or general disorder may initiate or continue. Such acts could be directed against companies such as ours. 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. 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 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.

We currently have two ultra-deepwater drillships and one jackup rig 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. We agreed with the shipyard constructing ENSCO 123 to delay the delivery of the rig until 2019 and, prior to the closing of the Atwood Merger, Atwood agreed to delay the delivery of two ultra deepwater drillships, ENSCO DS-13 and ENSCO DS-14, into 2019 and 2020, respectively. During periods of heightened rig construction projects, shipyards and third-party equipment vendors may be under significant resource constraints to meet delivery obligations. Such constraints may lead to substantial delivery and commissioning delays, equipment failures and/or quality deficiencies. Furthermore, new drilling rigs may face start-up or other operational complications following completion of construction, 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 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. location.~~

With respect to ENSCO DS-13 and ENSCO DS-14, if we were to secure contracts for such rigs, we would be subject to the risk of delays and other hazards impacting the viability of such contracts, which could have a material adverse effect on our financial position, operating results or cash flows. The same risks apply to ENSCO 123 which was recently contracted and is expected to commence operations in July 2019 in the North Sea.

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

We require skilled personnel to operate our drilling rigs and to provide technical services and support for our business. Historically, competition for the labor required for drilling operations and construction projects was intense as the number of rigs activated, added to worldwide fleets or under construction increased, leading to shortages of qualified personnel in the industry. During such periods of intensified competition, it is more difficult and costly to recruit and retain qualified employees, especially in foreign countries that require a certain percentage of national employees. The recent prolonged industry downturn may further reduce the number of qualified personnel available. 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. If such labor trends continue, they could further increase our costs or limit our ability to fully staff and operate our rigs.

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

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

As of December 31, 2018, we had $5.0 billion in total debt outstanding, representing approximately 38.2% of our total capitalization. Our current indebtedness may have several important effects on our future operations, including:

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

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

~~our ability to obtain additional financing to fund working capital requirements, capital expenditures, acquisitions, dividend payments 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. Our future cash flows may be insufficient to meet all of our working capital requirements, debt obligations and contractual commitments, and any insufficiency could negatively impact our business.

To the extent we are unable to repay our debt as it becomes due with cash on hand or from other sources, we will need to refinance our debt, sell assets or repay the debt with the proceeds from equity offerings. Additional indebtedness or equity financing may not be available to us in the future for the refinancing or repayment of existing debt, or if available, such additional debt or equity financing may not be available 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. These restrictions may limit our flexibility in obtaining additional financing and in pursuing various business opportunities.

In addition, our access to credit and capital markets depends on the credit ratings assigned to our credit facility and our notes by independent credit rating agencies. In recent years, we have experienced downgrades in our corporate credit rating and the credit rating of our senior notes. Our access to credit and capital markets may be more limited because we no longer have an investment grade credit rating. Any additional actual or anticipated downgrades in our corporate credit rating or the credit rating of our notes could further limit our ability to access credit and capital markets, or to restructure or refinance our indebtedness. Furthermore, future financings or refinancings may result in higher borrowing costs and require more restrictive terms and covenants, which may further restrict our operations. With our current credit ratings below investment grade, we have no access to the commercial paper market. Limitations on our ability to access credit and capital markets could have a material adverse impact on our financial position, operating results or cash flows.

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

~~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. Similarly, when lenders and institutional investors reduce, and in some cases cease to provide, funding to corporate and other industrial 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. 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.

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.

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

In general, our costs increase as the demand for contract drilling services and skilled labor increases. While many of our contracts include cost escalation provisions that allow changes to our day rate based on stipulated cost increases or decreases, the timing and amount earned from these day rate adjustments may differ from our actual increase in costs and certain contracts do not allow for such day rate adjustments. During times of reduced demand, reductions in costs may not be immediate as portions of the crew may be required to prepare our rigs for stacking, after which time the crew members are assigned to active rigs or dismissed. 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. Contract preparation expenses vary based on the scope and length of contract preparation required.

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

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. 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. 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. Any such breach could compromise our networks or our customers' and vendors' networks and the information stored there could be accessed, publicly disclosed, lost or stolen. Any such access, disclosure or other loss of information could result in legal claims or proceedings, including under data privacy laws and regulations such as the European Union General Data Protection Regulation, disrupt our operations and damage our reputation, which could adversely affect our financial position, operating results or cash flows. In the past, we have experienced data security breaches resulting from unauthorized access to our systems, which to date have not had a material impact on our operations; however, there is no assurance that such impacts will not be material in the future.

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

Under U.S. GAAP, we must separately account for the liability and equity components of convertible debt instruments, such as our 3.00% exchangeable senior notes due 2024 (the “2024 Convertible Notes”) in a manner that reflects the issuer’s economic interest cost. The equity component representing the conversion feature is recorded in additional paid-in capital within the shareholders’ equity section of our consolidated balance sheet. The carrying value of the debt component is recorded with a corresponding discount that will result in a significant amount of non-cash interest expense from the accretion of the discounted carrying value up to the principal amount over the term of the 2024 Convertible Notes. The equity component is not remeasured if we continue to meet certain conditions for equity

classification under U.S. 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.

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 6 to our consolidated financial statements included in "Item 8. Financial Statements and Supplementary Data" for additional information on our 2024 Convertible Notes.

The IRS may not agree with the conclusion that we should be treated as a foreign corporation for U.S. federal tax ~~purposes following the Atwood Merger.~~purposes.

Although ~~Ensco plc~~Valaris Limited is incorporated in ~~the United Kingdom,~~Bermuda (and thus would generally be considered a “foreign” corporation (or non-U.S. tax resident)), the U.S. Internal Revenue Service (“IRS”) may assert that we should be treated as a U.S. corporation (and ~~therefore, a~~ U.S. tax resident) ~~for U.S. federal income tax purposes following~~pursuant to the ~~Atwood Merger pursuant to~~rules under Section 7874 of the Internal Revenue Code. ~~For U.S. federal income tax purposes, a corporation is generally considered~~While we do not believe we are a U.S. ~~“domestic”~~ corporation (or U.S. tax resident) if it is organized in the United States, and a corporation is generally considered a “foreign” corporation (or non-U.S. tax resident) if it is not a U.S. domestic corporation. Because Ensco plc is an entity incorporated in England and Wales, it would generally be classified as a foreign corporation (or non-U.S. tax resident) under these rules. Section 7874 of the Internal Revenue Code provides an exception under which a foreign incorporated entity may, in certain circumstances, be treated as a U.S. domestic corporation for U.S. federal income tax purposes.

~~We would be treated as a U.S. domestic corporation (that is, as a U.S. tax resident) for U.S. federal income tax purposes following the Atwood Merger~~ pursuant to ~~Section 7874 of~~these rules, the ~~Internal Revenue Code if~~rules are complex and the percentage (by vote or value) of our shares considered to be held by former holders of shares of Atwood common stock after the acquisition by reason of holding shares of Atwood common stock for purposes of Section 7874 of the Internal Revenue Code (the “Section 7874 Percentage”) was 80% or more.

~~The Section 7874 Percentage at the time of the acquisition was less than 60%. The calculation of the Section 7874 Percentage, however, is complex, is subject to detailed regulations and~~determination is subject to factual uncertainties. As a result, the IRS could assert that the Section 7874 Percentage was greater than 80% and that we therefore are treated for U.S. federal income tax purposes as a U.S. domestic corporation (that is, as a U.S. tax resident) following the acquisition. 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.

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

Even if we are currently treated as a foreign corporation for U.S. federal income tax purposes, Section 7874 of the Internal Revenue Code and U.S. Treasury Regulations promulgated thereunder, including temporary Treasury Regulations, may adversely affect our ability to engage in certain future acquisitions of U.S. businesses in exchange for our equity, which may affect the tax efficiencies that otherwise might be achieved in such potential future transactions.

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

There is increasing uncertainty with respect to tax laws, regulations and treaties, and the interpretation and enforcement thereof that may affect our business. The Organization for Economic Cooperation and Development (“OECD”) has issued its final reports on base erosion and profit shifting, which generally focus on situations where profits are earned in low-tax jurisdictions, or payments are made between affiliates from jurisdictions with high tax rates to jurisdictions with lower tax rates. Certain countries within which we operate have recently enacted changes to their tax laws in response to the OECD recommendations or otherwise and these and other countries may enact changes to their tax laws or practices in the future (prospectively or retroactively), which may have a material adverse effect on our financial position, operating results or cash flows. U.S. federal income tax reform legislation enacted in late 2017 ~~formally known as the Tax Cuts and Jobs Act of 2017,~~ introduced significant changes to U.S. income tax law, including a reduction in the statutory income tax rate from 35% to 21% ~~effective January 1, 2018,~~, a one-time transition tax on deemed repatriation of deferred foreign income, a base erosion anti-abuse tax that effectively imposes a minimum tax on certain payments to non-U.S. affiliates, new and revised rules relating to the current taxation of certain income of foreign subsidiaries and revised rules associated with limitations on the deduction of interest.

In addition, our tax positions are subject to audit by U.K., U.S. and other foreign tax authorities. Such tax authorities may disagree with our interpretations or assessments of the effects of tax laws, treaties or regulations or their applicability to our corporate structure or certain transactions we have undertaken. Even if we are successful in maintaining our tax positions, we may incur significant expenses in defending our positions and contesting claims asserted by tax authorities. If we are unsuccessful in defending our tax positions, the resulting assessments or rulings could significantly impact our consolidated income taxes in past or future periods.

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

As a result of these uncertainties, as well as changes in the administrative practices and precedents of tax authorities or other matters (such as changes in applicable accounting rules) that increase the amounts we have provided for income taxes or deferred tax assets and liabilities in our consolidated financial statements, we cannot provide any assurances as to what our consolidated effective income tax rate will be in future periods. If we are unable to mitigate the negative consequences of any change in law, audit or other matters, this could cause our consolidated income taxes to increase and cause a material adverse effect on our financial position, operating results or cash flows.

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

We cannot provide any assurances as to what our future consolidated effective income tax rate will be because of, among other matters, uncertainty regarding the nature and extent of our business activities in any particular jurisdiction in the future and the tax laws of such jurisdictions, as well as potential changes in U.K., U.S. and other foreign tax laws, regulations or treaties or the interpretation or enforcement thereof, changes in the administrative practices and precedents of tax authorities or other matters (such as changes in applicable accounting rules) that increase the amounts we have provided for income taxes or deferred tax assets and liabilities in our consolidated financial statements. In addition, as a result of frequent changes in the taxing jurisdictions in which our drilling rigs are operated and/or owned, changes in the overall level of our income and changes in tax laws, our consolidated effective income tax rate may vary substantially from one reporting period to another. In periods of declining profitability, our income tax expense may not decline proportionately with income. Further, we may continue to incur income tax expense in periods in which we operate at a loss. Income tax rates imposed in the tax jurisdictions in which our subsidiaries conduct operations vary, as does the tax base to which the rates are applied. In some cases, tax rates may be applicable to gross revenues, statutory or negotiated deemed profits or other bases utilized under local tax laws, rather than to net income. In some instances, the movement of drilling rigs among taxing jurisdictions will involve the transfer of ownership of the drilling rigs among our subsidiaries. If we are unable to mitigate the negative consequences of any change in law, audit, business activity or other matters, this could cause our consolidated effective income tax rate to increase and cause a material adverse effect on our financial position, operating results or cash flows.

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

~~Transfers~~We are a Bermuda exempted company. As a result, the rights of holders of our ~~Class A ordinary~~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; and

•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 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. Additionally, perceived uncertainties as to our future direction as a result of investor activism or changes to the composition of the Board of Directors may lead to the perception of a change in the direction of our business, instability or lack of continuity which may be exploited by our competitors, cause concern to our current or potential customers, and make it more difficult to attract and retain qualified personnel. If customers choose to delay, defer or reduce transactions with us or transact with our competitors instead of us because of any such issues, then our revenue, earnings and operating cash flows could be adversely affected. In addition, the trading price of our shares could experience periods of increased volatility as a result of investor activism.

Risks Related to Our International Operations

Our non-U.S. operations involve additional risks not typically associated with U.S. operations.

Revenues from non-U.S. 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. Our non-U.S. operations and shipyard rig construction and enhancement projects are subject to political, economic and other uncertainties, including:

•terrorist acts, war and civil disturbances,

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

•repudiation or nationalization of contracts,

•assaults on property or personnel,

•piracy, kidnapping and extortion demands,

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

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

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

•complications associated with repairing and replacing equipment in remote locations,

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

•imposition of trade barriers,

•wage and price controls,

•import-export quotas,

•exchange restrictions,

•currency fluctuations,

•changes in monetary policies,

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

•changes in the manner or rate of taxation,

•limitations on our ability to recover amounts due,

•increased risk of government and vendor/supplier corruption,

•increased local content requirements,

•the occurrence or threat of epidemic or pandemic diseases (including the COVID-19 pandemic) and any government response to such occurrence or threat,

•changes in political conditions, and

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

We historically have maintained insurance coverage and obtained contractual indemnities that protect us from some, but not all, of the risks associated with our non-U.S. operations such as nationalization, deprivation, expropriation, confiscation, political and war risks. However, there can be no assurance that any particular type of contractual or insurance protection will be available in the future or that we will be able to purchase our desired level of insurance coverage at commercially feasible rates. Moreover, we may initiate a self-insurance program through one or more captive insurance subsidiaries. In circumstances where we have insurance protection for some or all of the risks associated with non-U.S. operations, such insurance may be subject to ~~stamp duty~~cancellation on short notice, and it is unlikely that we would be able to remove our rig or ~~stamp duty reserve~~rigs from the affected area within the notice period. Accordingly, a significant event for which we are uninsured, underinsured or self-insured, or for which we have not received an enforceable contractual indemnity from a customer, could cause a material adverse effect on our financial position, operating results or cash flows.

We are subject to various tax ~~(“SDRT”)~~laws and regulations in substantially all countries in which we operate or have a legal presence. Actions by tax authorities that impact our business structures and operating strategies, such as changes to tax treaties, laws and regulations, or the interpretation or repeal of any of the foregoing or changes in the ~~U.K., which would increase the cost~~administrative practices and precedents 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 Ensco 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 collectedtax authorities, adverse rulings 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 has announced that it will not seek to apply a charge to stamp duty~~audits 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~~otherwise, or ~~clearance system provider, such as DTC. However, it is possible that the U.K. government~~other challenges may ~~change or enact laws applicable to stamp duty or SDRT in response to this decision, which could~~ have a material ~~effect~~impact on ~~the cost of trading in~~ our ~~shares.~~tax expense.

~~If our Class A ordinary shares~~As required by law, we file periodic tax returns that are ~~not eligible for continued deposit~~subject to review and ~~clearing~~examination by various revenue agencies within the ~~facilities~~jurisdictions in which we operate. We are currently subject to tax assessments in various jurisdictions, which we are contesting. Although the outcome of ~~DTC, then transactions in our securities may~~such assessments cannot 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 NYSE 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 arrangementspredicted with DTC whereby DTC accepted our Class A ordinary shares for deposit, clearing and settlement services, and we agreed to indemnify DTC for any stamp duty and/or SDRT that may be assessed upon it as a result of its service as a clearance system provider for our Class A ordinary shares. However, DTC retains sole discretion to cease to act as a clearance system provider for our Class A ordinary shares at any time.

If DTC determines at any time that our shares are no longer eligible for deposit, clearing and settlement services within its facilities, our shares may become ineligible for continued listing on a U.S. securities exchange, and trading in such shares would be disrupted. 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 disruptioncertainty, unfavorable outcomes could have a material adverse effect on our liquidity.

Our non-U.S. operations also face the ~~trading price~~risk of fluctuating currency values, which may impact our revenues, operating costs and capital expenditures. We currently conduct contract drilling operations in certain countries that have experienced substantial fluctuations in the value of their currency compared to the U.S. dollar. 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. dollars (our functional currency) or freely convertible currency and, to the extent possible, by limiting our acceptance of foreign currency to amounts which approximate our expenditure requirements in such currencies. However, not all of our ~~Class~~ contracts contain these terms and there is no assurance that our contracts will contain such terms in the future.

A ~~ordinary shares.~~portion of the costs and expenditures incurred by our non-U.S. operations, including certain capital expenditures, are settled in local currencies, exposing us to risks associated with fluctuation in the value of these currencies relative to the U.S. dollar. 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. dollar in relation to the local currencies in these countries may increase our costs and expenditures.

~~Investor enforcement~~Our non-U.S. operations are also subject to various laws and regulations in countries in which we operate, including laws and regulations relating to the operation of ~~civil judgments against us~~drilling rigs and the requirements for equipment. We may be ~~more difficult.~~required to make significant capital expenditures to operate in such countries, which may not be reimbursed by our customers. 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. Moreover, certain countries accord preferential treatment to local contractors or joint ventures or impose specific quotas for local goods and services, which can increase our operational costs and place us at a competitive disadvantage. There can be no assurance that such laws and regulations or activities will not have a material adverse effect on our future operations.

~~Because~~The shipment of goods, services and technology across international borders subjects us to extensive trade laws and regulations. Our import activities are governed by specific customs laws and regulations in each of the countries where we operate. Moreover, many countries, including the United States, control the export and re-export of certain goods, services and technology and impose related export recordkeeping and reporting obligations. Governments also may impose express or de facto economic sanctions against certain countries, persons and other entities that may restrict or prohibit transactions involving such countries, persons and entities.

The laws and regulations concerning import activity, export recordkeeping and reporting, export control and economic sanctions are ~~a public limited company incorporated under the Laws of England~~complex and ~~Wales, investors could experience difficulty enforcing judgments obtained against us in U.S. courts. In addition, it~~constantly changing. These laws and regulations 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~~enacted, amended, enforced or interpreted in a ~~U.S. court.~~manner materially impacting our operations. Shipments can be delayed and denied export or entry for a variety of reasons, some of which are outside our control and some of which may result from failure to comply with existing legal and regulatory regimes. Shipping delays or denials could cause unscheduled operational downtime, reduced day rates during such downtime and contract cancellations. Any failure to comply with applicable legal and regulatory trading obligations also could result in criminal and civil penalties and sanctions, such as fines, imprisonment, exclusion from government contracts, seizure of shipments and loss of import and export privileges.

WeOur employees, contractors and agents may take actions in violation of our policies and procedures designed to promote compliance with the laws of the jurisdictions in which we operate. Any such violation could have ~~less flexibility~~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 ~~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 issuedbusiness any one 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 may only allot shares with the prior authorization of an ordinary resolutionmore of the ~~shareholders,~~“relevant

activities” referred to in the ES Act must comply with economic substance requirements. The ES Act may require in-scope Bermuda entities which ~~authorization must state~~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 ~~maximum amount~~manner in which we operate our business, which could adversely affect our business, financial condition and results 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~~operations.

The U.K.'s withdrawal from the ~~date~~E.U. may have a negative effect on ~~which~~economic conditions, financial markets and our business.

On April 27, 2021, the ~~shareholder resolution is passed. An ordinary resolution was passed by shareholders at our last annual general meeting in 2018 to authorize~~European Parliament approved 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~~agreement on August 21, 2019 (whichever is earlier). This authority was further increased by shareholders at an additional general meeting on February 21, 2019, expiring at the next annual shareholder meeting or at the close of business on April 22, 2020 (whichever is earlier). An ordinary resolution will be put to shareholders at our next annual shareholder meeting seeking their approval to renew the board's authority to allot up to a prescribed amount of shares for an additional term.

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. A special resolution was passed, in conjunction with an allotment authority at our last annual general meeting in 2018, to disapply pre-emption rights in respect of new shares up to a prescribed amount until the conclusion of the next annual general meeting or the close of business on August 21, 2019 (whichever is earlier). This authority was further increased by shareholders at an additional general meeting on February 21, 2019, expiring at the next annual shareholder meeting or at the close of business on April 22, 2020 (whichever is earlier). Special resolutions will be put to shareholders at our next annual shareholder meeting seeking their approval to renew the board's authority to disapply pre-emption rights in respect of new shares up to a prescribed amount for an additional term.

English law prohibits us from conducting "on-market purchases" as our shares will not be traded on a recognized investment exchange in the U.K. English law also generally prohibits a company from repurchasing its own shares by way of "off-market purchases" without the approval by a special resolution of the shareholders of the terms of the ~~contract by~~U.K.’s future relationship with the E.U. (the “Trade and Cooperation Agreement”), which provides for zero tariffs and quotas on the ~~purchase(s) is affected. Such approval may only last~~movement of goods between the U.K. and the E.U. (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 ~~a maximum period of five years after~~our business and the ~~date on which the resolution is passed. A special resolution was passed at our annual shareholder meeting in May 2018 to permit us to make "off-market" purchases~~businesses of our U.K. customers and suppliers. Any incremental costs incurred by our U.K. suppliers may be passed on to us and any supply chain disruption experienced by our U.K. customers or suppliers may in turn disrupt our own ~~shares pursuant~~operations.

The U.K.’s withdrawal from the E.U. has also given rise to ~~certain purchase agreements~~calls for the governments of other E.U. member states to consider withdrawal, while the U.K.’s withdrawal negotiation process has increased the risk of the possibility of a ~~five-year term.~~

~~We can provide no assurances~~further referendum concerning Scotland’s independence from the rest of the U.K. These developments, or the perception that ~~situations will not arise where such shareholder approval requirements for~~ any of ~~these actions would deprive our shareholders~~them could occur, have had and may continue to have a material adverse effect on global, regional and/or national economic conditions and the stability of ~~substantial benefits.~~global financial markets, and may significantly reduce global market liquidity.

~~Our articles of association contain anti-takeover provisions.~~

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 controlThe implementation of the ~~Company is conducted in an orderly manner, all shareholders~~Trade and Cooperation Agreement and/or any subsequent divergence of the ~~Company are treated equally and fairly and receive an optimum price for their shares and the long-term success of the Company is safeguarded. Under English~~ law ~~it may not be possible to implement these provisions in all circumstances.~~

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

~~The Code only applies to an offer for a public company that is registered~~applicable in the U.K. ~~(or the Channel Islands or the Isle of Man)~~ and the ~~securities~~E.U. 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 ~~are not admitted to trading~~could have a material adverse effect on ~~a regulated market~~our financial position, operating results or cash flows. Approximately 22% and 19% of our total revenues were generated 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~~eight months ended December 31, 2021 (Successor) 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 12four months ~~before the offer was announced.~~ended April 30, 2021 (Predecessor), respectively.

~~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 in capital taken in 2014, to reduce the amount of our share capital and non-distributable reserves and to create a corresponding increase in our distributable reserves out of which future distributions to shareholders can be made. To comply with English law, a reduction of capital would be subject to (a) approval of shareholders at a general meeting by special resolution; (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.

Item 1B.Unresolved Staff Comments

None.

Item 2.Properties

Contract Drilling Fleet

The following table provides certain information about the rigs in our drilling fleet ~~by reportable segment~~ as of February ~~20, 2019:~~

21, 2022:

Rig Name

Rig Type

Year Built/

Rebuilt

Design

Maximum

Water Depth/

Drilling Depth

Location

Status

Floaters

~~ENSCO DS-3~~VALARIS DS-4

Drillship

2010

Dynamically Positioned

~~10,000'~~12,000'/40,000'

Spain

~~Preservation stacked~~⁽¹⁾Under reactivation(3)

~~ENSCO DS-4~~VALARIS DS-7

Drillship

~~2010~~2013

Dynamically Positioned

10,000'/40,000'

~~Nigeria~~

~~Under contract~~

~~ENSCO DS-5~~

~~Drillship~~

~~2011~~

~~Dynamically Positioned~~

~~10,000'/40,000'~~

Spain

Preservation stacked⁽¹⁾

~~ENSCO DS-6~~VALARIS DS-8

Drillship

~~2012~~2015

Dynamically Positioned

~~10,000'/40,000'~~

~~Spain~~

~~Available~~

~~ENSCO DS-7~~

~~Drillship~~

~~2013~~

~~Dynamically Positioned~~

~~10,000'/40,000'~~

~~Cyprus~~

~~Available~~

~~ENSCO DS-8~~

~~Drillship~~

~~2015~~

~~Dynamically Positioned~~

~~10,000'/40,000'~~

~~Angola~~

~~Under contract~~

~~ENSCO DS-9~~

~~Drillship~~

~~2015~~

~~Dynamically Positioned~~

~~10,000'/40,000'~~

~~French Guiana~~

~~Under contract~~

~~ENSCO DS-10~~

~~Drillship~~

~~2018~~

~~Dynamically Positioned~~

~~10,000'/40,000'~~

~~Nigeria~~

~~Under contract~~

~~ENSCO DS-11~~

~~Drillship~~

~~2013~~

~~Dynamically Positioned~~

12,000'/40,000'

Spain

~~Available~~

~~ENSCO DS-12~~

~~Drillship~~

~~2013~~

~~Dynamically Positioned~~

~~12,000'/40,000'~~

~~Spain~~

~~Under contract~~

~~ENSCO DS-13~~

~~Drillship~~

~~2019~~

~~Dynamically Positioned~~

~~12,000'/40,000'~~

~~South Korea~~

~~Under construction~~⁽²⁾Preservation stacked(1)

~~ENSCO DS-14~~VALARIS DS-9

Drillship

~~2020~~2015

Dynamically Positioned

12,000'/40,000'

~~South Korea~~Spain

Under ~~construction~~⁽²⁾reactivation(3)

~~ENSCO 5004~~VALARIS DS-10

~~Semisubmersible~~Drillship

~~1982/2001/2014~~2015

~~F&G Enhanced Pacesetter~~Dynamically Positioned

~~1,500'~~12,000'/~~25,000'~~40,000'

~~Mediterranean~~Namibia

Under contract

~~ENSCO 5006~~VALARIS DS-11

~~Semisubmersible~~Drillship

~~1999/2014~~2013

~~Bingo 8000~~Dynamically Positioned

~~7,000'~~12,000'/~~25,000'~~40,000'

~~Australia~~Spain

~~Under contract~~

Preservation stacked(1)(4)

~~ENSCO 6002~~VALARIS DS-12

~~Semisubmersible~~Drillship

~~2001/2009/2015~~2013

~~Megathyst~~Dynamically Positioned

~~5,600'~~12,000'/~~25,000'~~40,000'

~~Brazil~~Angola

Under contract

~~ENSCO 8500~~VALARIS DS-13

~~Semisubmersible~~Drillship

~~2008~~Under construction

Dynamically Positioned

~~8,500'~~12,000'/~~35,000'~~40,000'

South Korea

Option(2)

VALARIS DS-14

Drillship

Under construction

Dynamically Positioned

12,000'/40,000'

South Korea

Option(2)

VALARIS DS-15

Drillship

2014

Dynamically Positioned

12,000'/40,000'

Brazil

Under contract

VALARIS DS-16

Drillship

2014

Dynamically Positioned

12,000'/40,000'

Gulf of Mexico

~~Preservation stacked~~⁽¹⁾Under reactivation(3)

~~ENSCO 8501~~VALARIS DS-17

~~Semisubmersible~~Drillship

~~2009~~2014

Dynamically Positioned

~~8,500'~~12,000'/~~35,000'~~40,000'

Spain

Preservation stacked(1)

VALARIS DS-18

Drillship

2015

Dynamically Positioned

12,000'/40,000'

Gulf of Mexico

Under contract

VALARIS DPS-1

Semisubmersible

2012

Dynamically Positioned

10,000'/35,000'

Australia

Under contract

VALARIS DPS-3

Semisubmersible

2010

Dynamically Positioned

8,500'/37,500'

Gulf of Mexico

Preservation stacked⁽¹⁾

~~ENSCO 8502~~VALARIS DPS-5

Semisubmersible

~~2010/~~2012

Dynamically Positioned

8,500'/35,000'

Gulf of Mexico

Under contract

VALARIS DPS-6

Semisubmersible

2012

Dynamically Positioned

8,500'/35,000'

Gulf of Mexico

Preservation stacked⁽¹⁾

~~ENSCO 8503~~VALARIS MS-1

Semisubmersible

~~2010~~2011

~~Dynamically Positioned~~

~~8,500'/35,000'~~

~~Mexico~~

~~Under contract~~

~~ENSCO 8504~~

~~Semisubmersible~~

~~2011~~

~~Dynamically Positioned~~

~~8,500'/35,000'~~

~~Japan~~

~~Under contract~~

~~ENSCO 8505~~

~~Semisubmersible~~

~~2012~~

~~Dynamically Positioned~~

~~8,500'/35,000'~~

~~Gulf of Mexico~~

~~Under contract~~

~~ENSCO 8506~~

~~Semisubmersible~~

~~2012~~

~~Dynamically Positioned~~

~~8,500'/35,000'~~

~~Gulf of Mexico~~

~~Preservation stacked~~⁽¹⁾

~~ENSCO DPS-1~~

~~Semisubmersible~~

~~2012~~

~~Dynamically Positioned~~

~~10,000'/35,000'~~

~~Australia~~

~~Under contract~~

~~ENSCO MS-1~~

~~Semisubmersible~~

~~2011~~

F&G ExD Millennium

~~8200'~~8,200'/~~32,000'~~40,000

~~Malaysia~~Australia

~~Available~~Under contract

Jackups

VALARIS 36

Jackup

1981/2011

MLT 116-C

300'/25,000'

Saudi Arabia

Leased to ARO drilling

~~Jackups~~VALARIS 54

Jackup

1982/2004

~~ENSCO 54~~

~~Jackup~~

~~1982/1997/2014~~

F&G L-780 MOD II-C

300'/25,000'

Saudi Arabia

Under contract

~~ENSCO~~VALARIS 67

Jackup

1976/2005

MLT 84-CE

~~400'~~350'/30,000'

Indonesia

~~Under contract~~

Preservation stacked(1)

~~ENSCO 68~~VALARIS 72

Jackup

~~1976/2004~~1981/2011

Hitachi K1025N

225'/25,000'

United Kingdom

Under contract

VALARIS 75

Jackup

1999

MLT ~~84-CE~~Super 116-C

400'/30,000'

Gulf of Mexico

~~Under contract~~

~~ENSCO 70~~

~~Jackup~~

~~1981/1996/2014~~

~~Hitachi K1032N~~

~~250'/30,000~~

~~United Kingdom~~

Preservation stacked⁽¹⁾

~~ENSCO 71~~VALARIS 76

Jackup

~~1982/1995/2012~~2000

~~Hitachi K1032N~~MLT Super 116-C

~~225'~~350'/30,000'

Saudi Arabia

Under contract

VALARIS 92

Jackup

1982/2003

MLT 116-C

210'/25,000'

United Kingdom

Under contract

VALARIS 102

Jackup

2002

KFELS MOD V-A

400'/30,000'

Gulf of Mexico

Preservation stacked⁽¹⁾

~~ENSCO 72~~VALARIS 104

Jackup

~~1981/1996~~2002/2011

~~Hitachi K1025N~~KFELS MOD V-B

~~225'~~400'/~~25,000'~~30,000'

~~United Kingdom~~UAE

~~Under contract~~

Preservation stacked(1)

~~ENSCO 75~~VALARIS 106

Jackup

~~1999~~2005

~~MLT Super 116-C~~KFELS MOD V-B

400'/30,000'

~~Gulf of Mexico~~Indonesia

Under contract

~~ENSCO 76~~VALARIS 107

Jackup

~~2000~~2006

~~MLT Super 116-C~~KFELS MOD V-B

~~350'~~400'/30,000'

~~Saudi Arabia~~Australia

Under contract

~~ENSCO 84~~VALARIS 108

Jackup

~~1981/2005/2012~~2007/2009

~~MLT 82-SD-C~~KFELS MOD V-B

~~250'~~400'/~~25,000'~~30,000'

Saudi Arabia

Under contract

~~ENSCO 87~~VALARIS 109

Jackup

~~1982/2006~~2008

~~MLT 116-C~~KFELS MOD V-Super B

350'/~~25,000'~~35,000'

~~Gulf of Mexico~~Namibia

~~Under contract~~

Preservation stacked(1)

~~ENSCO 88~~VALARIS 110

Jackup

~~1982/2004/2014~~2015

~~MLT 82-SD-C~~KFELS MOD V-B

~~250'~~400'/~~25,000'~~35,000'

~~Saudi Arabia~~Qatar

Under contract

~~ENSCO 92~~VALARIS 111

Jackup

~~1982/1996~~2003

~~MLT 116-C~~KFELS MOD V Enhanced B-Class

~~225'~~400'/~~25,000'~~36,000'

~~United Kingdom~~Croatia

~~Under contract~~

Preservation stacked(1)

~~ENSCO 96~~VALARIS 113

Jackup

~~1982/1997/~~2012

~~Hitachi 250-C~~Baker Marine Pacific Class 400

~~250'~~400'/~~25,000'~~30,000'

~~Saudi Arabia~~Philippines

~~Under contract~~

~~ENSCO 97~~

~~Jackup~~

~~1980/1997/2012~~

~~MLT 82 SD-C~~

~~250'/25,000'~~

~~Saudi Arabia~~

~~Under contract~~

~~ENSCO 100~~

~~Jackup~~

~~1987/2009~~

~~MLT 150-88-C~~

~~350'/30,000~~

~~United Kingdom~~

~~Available~~

Preservation stacked(1)

Rig Name

Rig Type

Year Built/

Rebuilt

Design

Maximum

Water Depth/

Drilling Depth

Location

Status

Jackups
(Continued)

~~ENSCO 101~~

~~Jackup~~

~~2000~~

~~KFELS MOD V-A~~

~~400'/30,000'~~

~~United Kingdom~~

~~Under contract~~

~~ENSCO 102~~

~~Jackup~~

~~2002~~

~~KFELS MOD V-A~~

~~400'/30,000'~~

~~Gulf of Mexico~~

~~Under contract~~

~~ENSCO 104~~

~~Jackup~~

~~2002~~

~~KFELS MOD V-B~~

~~400'/30,000'~~

~~UAE~~

~~Under contract~~

~~ENSCO 105~~

~~Jackup~~

~~2002~~

~~KFELS MOD V-B~~

~~400'/30,000'~~

~~Singapore~~

~~Preservation stacked~~⁽¹⁾

~~ENSCO 106~~

~~Jackup~~

~~2005~~

~~KFELS MOD V-B~~

~~400'/30,000'~~

~~Indonesia~~

~~Under contract~~

~~ENSCO 107~~

~~Jackup~~

~~2006~~

~~KFELS MOD V-B~~

~~400'/30,000'~~

~~Australia~~

~~Under contract~~

~~ENSCO 108~~

~~Jackup~~

~~2007~~

~~KFELS MOD V-B~~

~~400'/30,000'~~

~~Saudi Arabia~~

~~Under contract~~

~~ENSCO 109~~

~~Jackup~~

~~2008~~

~~KFELS MOD V-Super B~~

~~350'/35,000'~~

~~Angola~~

~~Under contract~~

~~ENSCO 110~~

~~Jackup~~

~~2015~~

~~KFELS MOD V-B~~

~~400'/30,000'~~

~~Qatar~~

~~Under contract~~

~~ENSCO 111~~

~~Jackup~~

~~2003~~

~~KFELS MOD V-B~~

~~400'/36,000'~~

~~Malta~~

~~Cold stacked~~

~~ENSCO 112~~

~~Jackup~~

~~2008~~

~~MLT Super 116-E~~

~~350'/30,000'~~

~~Malta~~

~~Cold stacked~~

~~ENSCO 113~~

~~Jackup~~

~~2012~~

~~Pacific Class 400~~

~~400'/30,000'~~

~~Philippines~~

~~Cold stacked~~

~~ENSCO 114~~

~~Jackup~~

~~2012~~

~~Pacific Class 400~~

~~400'/30,000'~~

~~Philippines~~

~~Cold stacked~~

~~ENSCO 115~~

~~Jackup~~

~~2013~~

~~Pacific Class 400~~

~~400'/30,000'~~

~~Malaysia~~

~~Under contract~~

~~ENSCO 120~~

~~Jackup~~

~~2013~~

~~KFELS Super A~~

~~400'/40,000'~~

~~United Kingdom~~

~~Under contract~~

~~ENSCO 121~~

~~Jackup~~

~~2013~~

~~KFELS Super A~~

~~400'/40,000'~~

~~United Kingdom~~

~~Under contract~~

~~ENSCO 122~~

~~Jackup~~

~~2014~~

~~KFELS Super A~~

~~400'/40,000'~~

~~United Kingdom~~

~~Under contract~~

~~ENSCO 123~~

~~Jackup~~

~~2019~~

~~KFELS Super A~~

~~400'/40,000'~~

~~Singapore~~

~~Under construction~~⁽³⁾

~~ENSCO 140~~

~~Jackup~~

~~2016~~

~~Cameron Letourneau Super 116E~~

~~400'/30,000'~~

~~Saudi Arabia~~

~~Under contract~~

~~ENSCO 141~~

~~Jackup~~

~~2016~~

~~Cameron Letourneau Super 116E~~

~~400'/30,000'~~

~~Saudi Arabia~~

~~Under contract~~


⁽¹⁾ VALARIS 114			Prior to stacking, upfront steps are taken to preserve the rig. This may include a quayside power source to dehumidify key equipment and/or provide electric current to the hull to prevent corrosion. Also, certain equipment may be removed from the rig for storage in a temperature-controlled environment. While stacked, large equipment that remains on the rig is periodically inspected and maintained by Ensco personnel. These steps are designed to reduce time and lower cost to reactivate the rig when market conditions improve.Jackup

2012

Baker Marine Pacific Class 400

400'/30,000'

Philippines

Preservation stacked(1)

⁽²⁾

VALARIS 115

~~Rig is currently under construction and is not contracted. The "year built" provided is based on the current construction schedule.~~Jackup

2013

Baker Marine Pacific Class 400

400'/30,000'

Thailand

Under contract

VALARIS 116

Jackup

2008/2018

LT 240- C

375'/35,000'

Saudi Arabia

Leased to ARO drilling

VALARIS 117

Jackup

2009

LT 240- C

350'/35,000'

Mexico

Under contract

VALARIS 118

Jackup

2012

LT 240- C

350'/35,000

Mexico

Under contract

VALARIS 120

Jackup

2013

KFELS Super A

400'/40,000'

United Kingdom

Under contract

VALARIS 121

Jackup

2013

KFELS Super A

400'/40,000'

United Kingdom

Under contract

VALARIS 122

Jackup

2013

KFELS Super A

400'/40,000'

United Kingdom

Under contract

VALARIS 123

Jackup

2016

KFELS Super A

400'/40,000'

Netherlands

Under contract

VALARIS 140

Jackup

2016

LT Super 116E

340'/30,000'

Saudi Arabia

Leased to ARO drilling

VALARIS 141

Jackup

2016

LT Super 116E

340'/30,000'

Saudi Arabia

Under contract

VALARIS 143

Jackup

2010/2018

LT EXL Super 116-E

350'/35,000'

Saudi Arabia

Leased to ARO drilling

VALARIS 144

Jackup

2010

LT Super 116-E

350'/35,000'

Gulf of Mexico

Under contract

VALARIS 145

Jackup

2010

LT Super 116-E

350'/35,000'

Gulf of Mexico

⁽³⁾Preservation stacked(1)

~~Rig is currently under construction but is contracted~~VALARIS 146

Jackup

2011/2018

LT EXL Super 116-E

320'/35,000'

Saudi Arabia

Leased to ~~commence operations in July~~ ARO drilling

VALARIS 147

Jackup

2012/2019 ~~in the North Sea. The "year built" provided is based on the current construction schedule.~~

LT Super 116-E

350'/30,000'

Saudi Arabia

Leased to ARO drilling

VALARIS 148

Jackup

2013/2019

LT Super 116-E

350'/30,000'

Saudi Arabia

Leased to ARO drilling

VALARIS 247

Jackup

1998

LT Super Gorilla

400'/35,000'

United Kingdom

Under contract

VALARIS 248

Jackup

2001/2014

LT Super Gorilla

400'/35,000'

United Kingdom

Under contract

VALARIS 249

Jackup

2001

LT Super Gorilla

400'/35,000'

New Zealand

Under contract

VALARIS 250

Jackup

2003

LT Super Gorilla XL

550'/35,000'

Saudi Arabia

Leased to ARO drilling

VALARIS Viking

Jackup

2011

KEFLS N Class

435'/35,000'

Norway

Under contract

VALARIS Stavanger

Jackup

2011

KEFLS N Class

400'/35,000'

Norway

Under contract

VALARIS Norway

Jackup

2011

KEFLS N Class

400'/35,000'

United Kingdom

Under contract

~~Income tax expense (benefit) from discontinued operations for the years ended December 31, 2018~~, ~~2017 and 2016 included $6.9 million of discrete tax expense and $2.1 million and $10.2 million of discrete tax benefits, respectively.~~

~~Debt and interest expense are not allocated to our discontinued operations.~~

LIQUIDITY AND CAPITAL RESOURCES

Liquidity

We remain focused on our liquidity and over the past several years have executed a number of financing transactions to improve our financial position and manage our debt maturities. In recent periods, a substantial portion of our cash has been utilized to repurchase debt and invest in the expansion and enhancement of our fleet of drilling rigs through newbuild construction, acquisition and upgrade projects. We expect that our cash and short-term investments will primarily be used to fund capital expenditures and service our debt during 2019.

~~Based on our balance sheet, our contractual backlog and $2.0 billion available under our Credit Facility, we~~ expect to fund our short-term liquidity needs, including contractual obligations and anticipated capital expenditures, as well as working capital requirements, from cash and ~~short-term investments~~cash equivalents. We expect to fund our long-term liquidity needs, including contractual obligations and anticipated capital expenditures from cash and cash equivalents, cash flows from operations and, if necessary, ~~funds borrowed under our Credit Facility or other future financing arrangements, including available shipyard financing options for our two drillships under construction. We~~we may rely on the issuance of debt and/or equity securities in the future to supplement our liquidity needs. However, the Indenture contains covenants that limit our ability to incur additional indebtedness.

~~In January 2018,~~Our liquidity position is summarized in the table below (in millions, except ratios):


	Successor		Predecessor
	December 31, 2021		December 31, 2020		December 31, 2019
Cash and cash equivalents	$	608.7	$	325.8	$	97.2
Available DIP facility capacity(1)	—		500.0		—
Available credit facility borrowing capacity	—		—		1,622.2
Total liquidity	$	608.7	$	825.8	$	1,719.4
Working capital	$	784.6	$	746.1	$	233.7
Current ratio	2.9		2.7		1.3

(1)On September 25, 2020, we ~~issued $1.0 billion aggregate principal amount of unsecured 7.75% senior notes due 2026 at par, net of debt issuance costs of $16.5 million. Net proceeds of $983.5~~entered into a $500.0 million DIP facility to provide liquidity when the Chapter 11 Cases were pending. However, the same was terminated upon our emergence from the ~~2026 Notes were partially used to fund~~Chapter 11 Cases on the repurchase and redemption of $237.6 million principal amount of our 8.50% notes due 2019, $328.0 million principal amount of our 6.875% notes due 2020 and $156.2 million principal amount of our 4.70% notes due 2021. We recognized a pre-tax loss on debt extinguishment of $19.0 million during the first quarter of 2018.Effective Date.

During 2017, upon closing of the Atwood Merger, we utilized acquired cash of $445.4 million and cash on hand from the liquidation of short-term investments to repay Atwood's debt and accrued interest of $1.3 billion. We amended our credit facility upon closing to extend the final maturity date by two years. Previously, our Credit Facility had a borrowing capacity of $2.25 billion through September 2019 that declined to $1.13 billion through September 2020. Subsequent to the amendment, our borrowing capacity is $2.0 billion through September 2019 and declines to $1.3 billion through September 2020 and to $1.2 billion through September 2022. The Credit Facility, as amended, requires us to maintain a total debt to total capitalization ratio that is less than or equal to 60%.

During the three-year period ended December 31, 2018, our primary sources of cash were $1.8 billion in proceeds from the issuance of senior notes, an aggregate $1.3 billion generated from operating activities of continuing operations, $850.9 million from net maturities of short-term investments and $585.5 million in proceeds from an equity offering. Our primary uses of cash during the same period included $2.2 billion for the repurchase and redemption of outstanding debt, $871.6 million for the repayment of Atwood debt, $1.3 billion for the construction, enhancement

~~and other improvement of our drilling rigs, including $980.7 million invested in newbuild construction, and $43.3 million for dividend payments.~~

~~Explanations of our liquidity and capital resources for each of the years in the three-year period ended December 31, 2018 are set forth below.~~

Cash Flows and Capital Expenditures

~~Our~~Absent periods where we have significant financing or investing transactions or activities, such as debt or equity issuances, debt repayments or business combinations, our primary sources and uses of cash ~~flows~~are driven by cash generated from ~~operating activities of continuing~~or used in operations and capital ~~expenditures on continuing operations for each of the years~~expenditures. Our net cash used in ~~the three-year period ended~~ ~~December 31, 2018~~operating activities and capital expenditures were as follows (in millions):

2018 2017 2016
Net cash provided by (used in) operating activities of continuing operations $ (55.7 ) $ 259.4
$ 1,077.4
Capital expenditures on continuing operations:

New rig construction $ 341.1
$ 429.8
$ 209.8
Rig enhancements 45.2
45.1
15.9
Minor upgrades and improvements 40.4
61.8
96.5
$ 426.7
$ 536.7
$ 322.2


	Successor		Predecessor
	Eight Months Ended December 31, 2021		Four Months Ended April 30, 2021		Year Ended December 31, 2020		Year Ended December 31, 2019
Net cash used in operating activities	$	(26.2)	$	(39.8)	$	(251.7)	$	(276.9)




Capital expenditures	$	(50.2)	$	(8.7)	$	(93.8)	$	(227.0)

During ~~2018,~~the eight months ended December 31, 2021 (Successor), our primary source of cash was proceeds of $25.1 million from the disposition of assets. Our primary uses of cash for the same period were $26.2 million used in operating activities and $50.2 million for the enhancement and other improvements of our drilling rigs. During the four months ended April 30, 2021 (Predecessor), our primary sources of cash were $520.0 million from the issuance of the First Lien Notes and proceeds of $30.1 million from the disposition of assets. Our primary uses of cash for the same period were $39.8 million used in operating activities and $8.7 million for the enhancement and other improvements of our drilling rigs.

Net cash used in operating activities during the eight months ended December 31, 2021 (Successor) primarily relates to reorganization costs and interest payments on the First Lien Notes while net cash used in operating activities for the four months ended April 30, 2021 (Predecessor) primarily relates to reorganization costs, partially offset by cash received from a tax refund.

During the year ended December 31, 2020 (Predecessor), our primary sources of cash were $596 million from borrowings on our credit facility and proceeds of $51.8 million for the disposition of assets. Our primary uses of cash for the same period were $251.7 million used in operating activities and $93.8 million for the enhancement and other improvements of our drilling rigs.

During 2020 (Predecessor), cash flows ~~from continuing operations declined~~used in operating activities decreased by ~~$315.1~~$25.2 million ~~or 121%,~~ as compared to the prior year due ~~primarily~~ to ~~declining margins and higher cash~~lower interest expense due to the debt financing transactions we undertook during the first quarter of 2018. As challenging industry conditions persist, and our remaining above-market contracts expire and utilization increases with the execution of new market-rate contracts, coupled with the potential impact of rig reactivation costs, ~~our operating cash flows are expected to decline further and remain negative over the near-term.~~

During 2017, excluding the impact of ENSCO DS-9 and ENSCO 8503 lump-sum termination payments totaling $205.0 million received during 2016, cash flows from continuing operations declined by $613.0 million, or 70%, as compared to the prior year. The decline primarily resulted from a $823.0 million decline in cash receipts from contract drilling services, partially offset by ~~a $190.4 million decline in cash payments related to contract drilling expenses and a $65.0 million decline in cash paid for interest, net of amounts capitalized.~~declining margins.

~~We remain focused on our long-established strategy of high-grading and expanding the size of our fleet.~~ During the ~~three-year period~~year ended December 31, ~~2018, we invested $980.7~~2019 (Predecessor), our primary sources of cash were cash acquired of $931.9 million in the Rowan acquisition and proceeds of $474.0 million from the maturity of short-term investments. Our primary uses of cash for the same period were $928.1 million used to repay long-term borrowings, $276.9 million used in operating activities and $227.0 million for the enhancement and other improvements of our drilling rigs.

Prior to our chapter 11 filing, we had contractual commitments for the construction of ~~new drilling~~VALARIS DS-13 and VALARIS DS-14. On February 26, 2021, we entered into amended agreements with the shipyard that became effective upon our emergence from bankruptcy. The amendments provide for, among other things, an option construct whereby the Company has the right, but not the obligation, to take delivery of either or both rigs on or before December 31, 2023. Under the amended agreements, the purchase price for the rigs is estimated to be approximately $119.1 million for VALARIS DS-13 and ~~an additional $106.2~~$218.3 million ~~enhancing~~for VALARIS DS-14, assuming a December 31, 2023 delivery date. Delivery can be requested any time prior to December 31, 2023 with a downward purchase price adjustment based on predetermined terms. If the ~~capability~~Company elects not to purchase the rigs, the Company has no further obligations to the shipyard. The amended agreements removed any parent company guarantee.

We continue to take a disciplined approach to reactivations with our stacked rigs, only returning them to the active fleet when there is visibility into work at attractive economics. In most cases, we expect the initial contract to pay for the reactivation costs and ~~extending~~that the ~~useful lives~~rig would have solid prospects for longer-term work. Most of ~~our existing fleet.~~this reactivation cost will be operating expenses, recognized in the income statement, related to de-preservation activities, including reinstalling key pieces of equipment and crewing up the rigs. Capital expenditures during reactivations include rig modifications, equipment overhauls and any customer required capital upgrades. We would generally expect to be compensated for these customer-specific enhancements.

Based on our current projections, we expect capital expenditures during ~~2019~~2022 to ~~include approximately $160~~approximate $225 million ~~for newbuild construction, approximately $20~~to $250 million for rig enhancement, ~~projects~~reactivation and ~~approximately $50 million~~upgrade projects. We expect that customers will reimburse us for ~~minor upgrades and improvements.~~a significant portion of the 2022 expenditures. Depending on market conditions and future opportunities, we may make additional capital expenditures to upgrade rigs for customer requirements and construct or acquire additional rigs. ~~Of the $160~~

Approximately $70 million of our expected capital expenditures for ~~newbuild construction, approximately $100 million relates~~2022 relate to the reactivation and upgrade of the VALARIS DS-11 for an eight-well contract for a deepwater project in the U.S. Gulf of Mexico expected to commence in mid-2024. The contract requires the rig to be upgraded with 20,000 psi well-control equipment. In February 2022, the customer decided not to sanction and therefore withdraw from the project associated with this contract. As of the date hereof, the customer has not terminated the contract, but may do so upon the payment of an early termination fee should the project not receive a final ~~milestone payment~~investment decision (FID). The project has not received FID. We are in discussions with the customer and ~~accrued interest thereon~~its partner on the project to determine next steps. In the event of termination, the early termination fee and contractual reimbursements from the customer will be more than sufficient to cover expenses and commitments incurred by Valaris on the project.

As we begin to reactivate rigs, we expect future spending levels to increase beyond the levels we incurred in 2020 and 2021, with more spending associated with reactivation of our floater fleet relative to our jackup fleet and for ~~ENSCO DS-13~~rigs that have been preservation stacked for longer periods of time.

We review from time to time possible acquisition opportunities relating to our business, which may atinclude the acquisition of rigs or other businesses. The timing, size or success of any acquisition efforts and the associated potential capital commitments are unpredictable and uncertain. We may seek to fund all or part of any such efforts with cash on hand and proceeds from debt and/or equity issuances and may issue equity directly to the sellers. Our ability to obtain capital for additional projects to implement our ~~election, be converted to a promissory note bearing interest of 5.0% per annum due December 30, 2022.~~

~~Dividends~~

~~Our Board of Directors declared a $0.01 quarterly cash dividend per Class A ordinary share for each quarter during 2018. In October 2017, we amended~~growth strategy over the longer term will depend on our Credit Facility, which prohibits us from paying dividends in excess of $0.01 per share per fiscal quarter. Dividends in excess of this amount would require the amendment or waiver of such provision. The declaration and amount of future ~~dividends is at the discretion of our Board of Directors. In the future, our Board of Directors may, without advance notice, determine to reduce or suspend our dividend in order to~~

improve our financial flexibility and best position us for long-term success. When evaluating dividend payment timing and amounts, our Board of Directors considers several factors, including our profitability, liquidity,operating performance, financial condition ~~market outlook, reinvestment opportunities, capital~~and, more broadly, on the availability of equity and debt financing. Capital availability will be affected by prevailing conditions in our industry, the global economy, the global financial markets and other factors, many of which are beyond our control. In addition, any additional debt service requirements we take on could be based on higher interest rates and ~~limitations under~~shorter maturities and could impose a significant burden on our ~~Credit Facility.~~results of operations and financial condition, and the issuance of additional equity securities could result in significant dilution to shareholders.

Financing and Capital Resources

~~Our total debt, total capital~~Successor First Lien Notes

On the Effective Date, in accordance with the plan of reorganization and ~~total debt~~Backstop Commitment Agreement, dated August 18, 2020 (as amended, the "BCA"), the Company consummated the rights offering of the First Lien Notes and associated shares in an aggregate principal amount of $550 million. In accordance with the BCA, certain holders of senior notes claims and certain holders of claims under the Revolving Credit Facility who provided backstop commitments received the backstop premium in an aggregate amount equal to ~~total capital ratios~~$50.0 million in First Lien Notes and 2.7% of the Common Shares on the Effective Date. The Debtors paid a commitment fee of $20.0 million, in cash prior to the Petition Date, which was loaned back to the reorganized company upon emergence. Therefore, upon emergence the Debtors received $520 million in cash in exchange for a $550 million note, which includes the backstop premium. See“Note 2 – Chapter 11 Proceedings” to our consolidated financial statements included in "Item 8. Financial Statements and Supplementary Data" for additional information.

The First Lien Notes were issued pursuant to the Indenture among Valaris Limited, certain direct and indirect subsidiaries of Valaris Limited as guarantors, and Wilmington Savings Fund Society, FSB, as collateral agent and trustee (in such capacities, the “Collateral Agent”).

The First Lien Notes are guaranteed, jointly and severally, on a senior basis, by certain of the direct and indirect subsidiaries of the Company. The First Lien Notes and such guarantees are secured by first-priority perfected liens on 100% of the equity interests of each Restricted Subsidiary directly owned by the Company or any guarantor and a first-priority perfected lien on substantially all assets of the Company and each guarantor of the First Lien Notes, in each case subject to certain exceptions and limitations. The following is a brief description of the material provisions of the Indenture and the First Lien Notes.

The First Lien Notes are scheduled to mature on April 30, 2028. Interest on the First Lien Notes accrues, at our option, at a rate of: (i) 8.25% per annum, payable in cash; (ii) 10.25% per annum, with 50% of such interest to be payable in cash and 50% of such interest to be paid in kind; or (iii) 12% per annum, with the entirety of such interest to be paid in kind. Interest is due semi-annually in arrears on May 1 and November 1 of each year and shall be computed on the basis of a 360-day year of twelve 30-day months. The first cash interest payment was made on November 1, 2021.

At any time prior to April 30, 2023, the Company may redeem up to 35% of the aggregate principal amount of the First Lien Notes at a redemption price of 104% up to the net cash proceeds received by the Company from equity offerings provided that at least 65% of the aggregate principal amount of the First Lien Notes remains outstanding and provided that the redemption occurs within 120 days after such equity offering of the Company. At any time prior to April 30, 2023 the Company may redeem the First Lien Notes at a redemption price of 104% plus a “make-whole” premium. On or after April 30, 2023, the Company may redeem all or part of the First Lien Notes at fixed redemption prices (expressed as percentages of the principal amount), plus accrued and unpaid interest, if any, to, but excluding, the redemption date. The Company may also redeem the First Lien Notes, in whole or in part, at any time and from time to time on or after April 30, 2026 at a redemption price equal to 100% of the principal amount plus accrued and unpaid interest, if any, to, but excluding, the applicable redemption date. Notwithstanding the foregoing, if a Change of Control (as defined in the Indenture, with certain exclusions as provided therein) occurs, the Company will be required to make an offer to repurchase all or any part of each note holder’s notes at a purchase price equal to 101% of the aggregate principal amount of First Lien Notes repurchased, plus accrued and unpaid interest to, but excluding, the applicable date.

The Indenture contains covenants that limit, among other things, the Company's ability and the ability of the guarantors and other restricted subsidiaries, to: (i) incur, assume or guarantee additional indebtedness; (ii) pay dividends or distributions on equity interests or redeem or repurchase equity interests; (iii) make investments; (iv) repay or redeem junior debt; (v) transfer or sell assets; (vi) enter into sale and lease back transactions; (vii) create, incur or assume liens; and (viii) enter into transactions with certain affiliates. These covenants are subject to a number of important limitations and exceptions. As of December 31, ~~2018, 2017~~2021, we were in compliance with our covenants under the Indenture.

The Indenture also provides for certain customary events of default, including, among other things, nonpayment of principal or interest, breach of covenants, failure to pay final judgments in excess of a specified threshold, failure of a guarantee to remain in effect, failure of a collateral document to create an effective security interest in collateral, with a fair market value in excess of a specified threshold, bankruptcy and ~~2016~~ ~~are summarized below (in millions, except percentages):~~insolvency events, cross payment default and cross acceleration, which could permit the principal, premium, if any, interest and other monetary obligations on all the then outstanding First Lien Notes to be declared due and payable immediately.

2018 2017 2016
Total debt $ 5,010.4
$ 4,750.7
$ 5,274.5
Total capital⁽¹⁾
13,101.8
13,482.8
13,525.1
Total debt to total capital 38.2 % 35.2 % 39.0 %
PredecessorSenior Notes


⁽¹⁾	~~Total capital consists of total debt and Ensco shareholders' equity.~~

~~During 2018,~~The commencement of the Chapter 11 Cases was considered an event of default under each series of our ~~total~~senior notes and all obligations thereunder were accelerated. However, any efforts to enforce payment obligations related to the acceleration of our debt ~~increased by $259.7 million and total capital declined by $381.0 million, respectively. Our total debt increased~~were automatically stayed as a result of the ~~debt transactions we undertook during~~filing of the ~~first quarter~~Chapter 11 Cases. Accordingly, the $6.5 billion in aggregate principal amount outstanding under the Predecessor senior notes as well as $201.9 million in associated accrued interest as of ~~2018 and~~the Petition Date were classified as Liabilities Subject to Compromise in our ~~total capital declined~~Consolidated Balance Sheet as ~~a result~~of December 31, 2020. On the Effective Date, pursuant to the plan of reorganization, each series of our ~~current period net loss, partially offset by~~senior notes were cancelled and the ~~aforementioned increase~~holders thereunder received the treatment as set forth in the plan of reorganization.

See "Note 2 - Chapter 11 Proceedings" to our ~~total~~consolidated financial statements included in "Item 8. Financial Statements and Supplementary Data" for more information related to our emergence from Chapter 11 Cases and cancellation of Predecessor debt. ~~This resulted in an increase~~

Tender Offers and Open Market Repurchases (Predecessor)

In early March 2020, we repurchased $12.8 million of our ~~total debt to total capital ratio from 35.2% to 38.2%.~~

~~During 2017, our total debt and total capital declined by $523.8~~outstanding 4.70% senior notes due 2021 on the open market for an aggregate purchase price of $9.7 million, ~~and $42.3 million, respectively. Our total debt declined as a result of debt repurchased during the year and our total capital declined as~~excluding accrued interest, with cash on hand. As a result of the transaction, we recognized a pre-tax gain of $3.1 million net ~~loss incurred during~~of discounts in other, net, in the ~~period~~Consolidated Statements of Operations.

On June 25, 2019, we commenced cash tender offers for certain series of senior notes issued by us and certain of our wholly-owned subsidiaries. The tender offers expired on July 23, 2019, and we repurchased $951.8 million of our outstanding senior notes for an aggregate purchase price of $724.1 million. As a result of the transaction, we recognized a pre-tax gain from debt extinguishment of $194.1 million, net of discounts, premiums and debt issuance costs.

PredecessorRevolving Credit Facility

The commencement of the Chapter 11 Cases constituted an event of default under our then existing Revolving Credit Facility. However, the ability of the lenders to exercise remedies in respect of the Revolving Credit Facility was stayed upon commencement of the Chapter 11 Cases. Accordingly, the $581.0 million of outstanding borrowings as well as accrued interest as of the Petition Date were classified as Liabilities Subject to Compromise in our Consolidated Balance Sheet as of December 31, 2020. On the Effective Date, pursuant to the plan of reorganization, the Revolving Credit Facility was cancelled and the ~~aforementioned reduction in total debt, partially offset by~~holders thereunder received the ~~equity issued in connection with the Atwood Merger. This resulted in a decline of our total debt to total capital ratio from 39.0% to 35.2%.~~

~~Convertible Senior Notes~~

In December 2016, Ensco Jersey Finance Limited, a wholly-owned subsidiary of Ensco plc, issued $849.5 million aggregate principal amount of unsecured 2024 Convertible Notes in a private offering. The 2024 Convertible Notes are fully and unconditionally guaranteed, on a senior, unsecured basis, by Ensco plc and are exchangeable into cash, our Class A ordinary shares or a combination thereof, at our election. Interest on the 2024 Convertible Notes is payable semiannually on January 31 and July 31 of each year. The 2024 Convertible Notes will mature on January 31, 2024, unless exchanged, redeemed or repurchased in accordance with their terms prior to such date. Holders may exchange their 2024 Convertible Notes at their option any time prior to July 31, 2023 only under certain circumstancestreatment as set forth in the ~~indenture governing~~plan of reorganization.

Prior to the ~~2024 Convertible Notes. On or after July 31, 2023, holders may exchange their 2024 Convertible~~Effective Date, pursuant to the plan of reorganization, all undrawn letters of credit issued under the Revolving Credit Facility were collateralized pursuant to the terms of the Revolving Credit Facility.

Investment in ARO and Notes Receivable from ARO

We consider our investment in ARO to be a significant component of our investment portfolio and an integral part of our long-term capital resources. We expect to receive cash from ARO in the future both from the maturity of our long-term notes receivable and from the distribution of earnings from ARO. The long-term notes receivable, which are governed by the laws of Saudi Arabia, 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 distribution of earnings to the joint-venture partners is at ~~any time.~~the discretion of the ARO Board of Managers, consisting of 50/50 membership of managers appointed by Saudi Aramco and managers appointed by us, with approval required by both shareholders. The ~~exchange rate is 71.3343shares per $1,000 principal~~timing and amount of ~~notes, representing an exchange price~~any cash distributions to the joint-venture partners cannot be predicted with certainty and will be influenced by various factors, including the liquidity position and long-term capital requirements of ~~$14.02per share, and is subject~~ARO. ARO has not made a cash distribution of earnings to ~~adjustment upon certain events. The 2024 Convertible Notes may not be redeemed by us except~~its partners since its formation. See "Note 6 - Equity Method Investment in ~~the event of certain tax law changes.~~

The indenture governing the 2024 Convertible Notes contains customary events of default, including failure to pay principal or interest on such notes when due, among others. The indenture also contains certain restrictions, including, among others, restrictions on our ability and the ability of our subsidiaries to create or incur secured indebtedness, enter into certain sale/leaseback transactions and enter into certain merger or consolidation transactions. See Note 6ARO" to our consolidated financial statements included in "Item 8. Financial Statements and Supplementary Data" for additional information on our ~~2024 Convertible Notes.~~investment in ARO and notes receivable from ARO.

~~Senior Notes~~

~~On January 26, 2018, we issued $1.0 billion aggregate principal amount of unsecured 7.75% senior notes due 2026 at par, net of $16.5 million in debt issuance costs. Interest on~~The following table summarizes the ~~2026 Notes is payable semiannually on February 1 and August 1 of each year.~~

~~During 2017, we exchanged $332.0 million aggregate principal amount of unsecured 8.00% senior notes due 2024 (the “8% 2024 Notes”) for certain amounts~~maturity schedule of our ~~outstanding senior~~ notes ~~due 2019, 2020 and 2021. Interest on the 8% 2024 Notes is payable semiannually on January 31 and July 31 of each year.~~

During 2015, we issued $700.0 million aggregate principal amount of unsecured 5.20% senior notes due 2025 (the “2025 Notes”) at a discount of $2.6 million and $400.0 million aggregate principal amount of unsecured 5.75% senior notes due 2044 (the “New 2044 Notes”) at a discount of $18.7 million in a public offering. Interest on the 2025 Notes is payable semiannually on March 15 and September 15 of each year. Interest on the New 2044 Notes is payable semiannually on April 1 and October 1 of each year.

During 2014, we issued $625.0 million aggregate principal amount of unsecured 4.50% senior notes due 2024 (the "2024 Notes") at a discount of $850,000 and $625.0 million aggregate principal amount of unsecured 5.75% senior notes due 2044 (the "Existing 2044 Notes" and together with the New 2044 Notes, the "2044 Notes") at a discount of $2.8 million. Interest on the 2024 Notes and the Existing 2044 Notes is payable semiannually on April 1 and October 1 of each year. The Existing 2044 Notes and the New 2044 Notes are treated as a single series of debt securities under the indenture governing the notes.

During 2011, we issued $1.5 billion aggregate principal amount of unsecured 4.70% senior notes due 2021 (the “2021 Notes”) at a discount of $29.6 million in a public offering. Interest on the 2021 Notes is payable semiannually on March 15 and September 15 of each year.

Upon consummation of our acquisition of Pride International LLC ("Pride") during 2011, we assumed outstanding debt comprised of $900.0 million aggregate principal amount of unsecured 6.875% senior notes due 2020, $500.0 million aggregate principal amount of unsecured 8.5% senior notes due 2019 and $300.0 million aggregate principal amount of unsecured 7.875% senior notes due 2040 (collectively, the "Acquired Notes" and together with the 2021 Notes, 8% 2024 Notes, 2024 Notes, 2025 Notes, 2026 Notes and 2044 Notes, the "Senior Notes"). Ensco plc has fully and unconditionally guaranteed the performance of all Pride obligations with respect to the Acquired Notes. See "Note 15 - Guarantee of Registered Securities" for additional information on the guarantee of the Acquired Notes.

~~We may redeem the 8% 2024 Notes, 2024 Notes, 2025 Notes, 2026 Notes and 2044 Notes in whole at any time, or in part~~receivable from time to time, prior to maturity. If we elect to redeem the 8% 2024 Notes, 2024 Notes, 2025 Notes and 2026 Notes before the date that is three months prior to the maturity date or the 2044 Notes before the date that is six months prior to the maturity date, we will pay an amount equal to 100% of the principal amount of the notes redeemed plus accrued and unpaid interest and a "make-whole" premium. If we elect to redeem the 8% 2024 Notes, 2024 Notes, 2025 Notes, 2026 Notes or 2044 Notes on or after the aforementioned dates, we will pay an amount equal to 100% of the principal amount of the notes redeemed plus accrued and unpaid interest, but we are not required to pay a "make-whole" premium.

We may redeem each series of the 2021 Notes and the Acquired Notes, in whole or in part, at any time at a price equal to 100% of their principal amount, plus accrued and unpaid interest and a "make-whole" premium.

The indentures governing the Senior Notes contain customary events of default, including failure to pay principal or interest on such notes when due, among others. The indentures governing the Senior Notes also contain certain restrictions, including, among others, restrictions on our ability and the ability of our subsidiaries to create or incur secured indebtedness, enter into certain sale/leaseback transactions and enter into certain merger or consolidation transactions.

~~Debentures Due 2027~~

During 1997, Ensco International Incorporated issued $150.0 million of unsecured 7.20% Debentures due 2027 (the "Debentures"). Interest on the Debentures is payable semiannually on May 15 and November 15 of each year. We may redeem the Debentures, in whole or in part, at any time prior to maturity, at a price equal to 100% of their principal amount, plus accrued and unpaid interest and a "make-whole" premium. During 2009, Ensco plc entered into a supplemental indenture to unconditionally guarantee the principal and interest payments on the Debentures. See "Note 15 - Guarantee of Registered Securities" for additional information on the guarantee of the Debentures.

The Debentures and the indenture pursuant to which the Debentures were issued also contain customary events of default, including failure to pay principal or interest on the Debentures when due, among others. The indenture also contains certain restrictions, including, among others, restrictions on our ability and the ability of our subsidiaries to create or incur secured indebtedness, enter into certain sale/leaseback transactions and enter into certain merger or consolidation transactions.

~~Tender Offers, Redemptions and Open Market Repurchases~~

Concurrent with the issuance of the 2026 Notes in January 2018, we launched cash tender offers for up to $985.0 million aggregate principal amount of certain series of our senior notes issued by us and Pride, our wholly-owned subsidiary. The tender offers expired February 7, 2018, and we repurchased $182.6 million of our 8.50% senior notes due 2019, $256.6 million of our 6.875% senior notes due 2020 and $156.2 million of our 4.70% senior notes due 2021. Subsequently, we issued a redemption notice for the remaining outstanding $55.0 million principal amount of the 8.50% senior notes due 2019 and repurchased $71.4 million principal amount of our senior notes due 2020. As a result of these transactions, we recognized a pre-tax loss from debt extinguishment of $19.0 million, net of discounts, premiums, debt issuance costs and commissions during the first quarter of 2018.

During 2017, we repurchased $194.1 million of our outstanding senior notes on the open market for an aggregate purchase price of $204.5 million with cash on hand and recognized an insignificant pre-tax gain, net of discounts, premiums and debt issuance costs.

~~Our tender offers and open market repurchases during the two-year period ended December 31, 2018 are summarized in the following tables (in millions):~~

~~Year Ended December 31, 2018~~

Aggregate Principal Amount Repurchased
Aggregate Repurchase Price⁽¹⁾
8.50% Senior notes due 2019 $ 237.6
$ 256.8
6.875% Senior notes due 2020 328.0
354.7
4.70% Senior notes due 2021 156.2
159.7
Total $ 721.8
$ 771.2

~~Year Ended December 31, 2017~~

Aggregate Principal Amount Repurchased
Aggregate Repurchase Price⁽¹⁾
8.50% Senior notes due 2019 $ 54.6
$ 60.1
6.875% Senior notes due 2020 100.1
105.1
4.70% Senior notes due 2021 39.4
39.3
Total $ 194.1
$ 204.5


⁽¹⁾	~~Excludes accrued interest paid to holders of the repurchased senior notes.~~

~~Exchange Offers~~

During 2017, we completed exchange offers to exchange our outstanding 2019 Notes, 2020 Notes and 2021 Notes for the 8% 2024 Notes and cash. The exchange offers resulted in the tender of $649.5 million aggregate principal amount of our outstanding notes that were settled and exchanged as follows (in millions):

Aggregate Principal Amount Repurchased 8% Senior Notes Due 2024 Consideration Cash
Consideration Total Consideration
8.50% Senior notes due 2019 $ 145.8
$ 81.6
$ 81.7
$ 163.3
6.875% Senior notes due 2020 129.8
69.3
69.4
138.7
4.70% Senior notes due 2021 373.9
181.1
181.4
362.5
Total $ 649.5
$ 332.0
$ 332.5
$ 664.5

During the year ended December 31, 2017, we recognized a pre-tax loss on the exchange offers of approximately $6.2 million, consisting of a loss of $3.5 million that includes the write-off of premiums on tendered debt and $2.7 million of transaction costs.

~~Debt to Equity Exchange~~

During 2016, we entered into a privately-negotiated exchange agreement whereby we issued 1,822,432 Class A ordinary shares, representing less than one percent of our outstanding shares, in exchange for $24.5 million principal amount of our 2044 Notes, resulting in a pre-tax gain from debt extinguishment of $8.8 million.

~~Revolving Credit~~

In October 2017, we amended our revolving credit facility ("Credit Facility") to extend the final maturity date by two years. Previously, our Credit Facility had a borrowing capacity of $2.25 billion through September 2019 that declined to $1.13 billion through September 2020. Subsequent to the amendment, our borrowing capacity is $2.0 billion through September 2019 and declines to $1.3 billion through September 2020 and to $1.2 billion through September 2022. The credit agreement governing our Credit Facility includes an accordion feature allowing us to increase the commitments expiring in September 2022 up to an aggregate amount not to exceed $1.5 billion.

Advances under the Credit Facility bear interest at Base Rate or LIBOR plus an applicable margin rate, depending on our credit ratings. We are required to pay a quarterly commitment fee on the undrawn portion of the $2.0 billion commitment, which is also based on our credit ratings.

In January 2018, Moody's downgraded our senior unsecured bond credit rating from B2 to B3. The rating actions resulted in an increase to the interest rates applicable to our borrowings and the quarterly commitment fee on the undrawn portion of the $2.0 billion commitment. The applicable margin rates are 3.00% per annum for Base Rate advances and 4.00% per annum for LIBOR advances. The quarterly commitment fee is 0.75% per annum on the undrawn portion of the $2.0 billion commitment.

The Credit Facility requires us to maintain a total debt to total capitalization ratio that is less than or equal to 60% and to provide guarantees from certain of our rig-owning subsidiaries sufficient to meet certain guarantee coverage ratios. The Credit Facility also contains customary restrictive covenants, including, among others, prohibitions on creating, incurring or assuming certain debt and liens (subject to customary exceptions, including a permitted lien basket that permits us to raise secured debt up to the lesser of $750 million or 10% of consolidated tangible net worth (as defined in the Credit Facility)); entering into certain merger arrangements; selling, leasing, transferring or otherwise disposing of all or substantially all of our assets; making a material change in the nature of the business; paying or distributing dividends on our ordinary shares (subject to certain exceptions, including the ability to continue paying a quarterly dividend of $0.01 per share); borrowings, if after giving effect to any such borrowings and the application of the proceeds thereof, the aggregate amount of available cash (as defined in the Credit Facility) would exceed $150 million; and entering into certain transactions with affiliates.

The Credit Facility also includes a covenant restricting our ability to repay indebtedness maturing after September 2022, which is the final maturity date of our Credit Facility. This covenant is subject to certain exceptions that permit us to manage our balance sheet, including the ability to make repayments of indebtedness (i) of acquired companies within 90 days of the completion of the acquisition or (ii) if, after giving effect to such repayments, available cash is greater than $250 million and there are no amounts outstanding under the Credit Facility.

Our access to credit and capital markets depends on the credit ratings assigned to our debt. As a result of recent rating actions by credit rating agencies, we no longer maintain an investment-grade status. Our current credit ratings, and any additional actual or anticipated downgrades in our credit ratings, could limit our available options when accessing credit and capital markets, or when restructuring or refinancing our debt. In addition, future financings or refinancings may result in higher borrowing costs and require more restrictive terms and covenants, which may further restrict our operations.

~~Maturities~~

The descriptions of our senior notes above reflect the original principal amounts issued, which have subsequently changed as a result of our tenders, repurchases, exchanges, redemptions and new debt issuances such that the maturities of our debt were as follows2021 (in millions):


Maturity Date	Principal amount
October 2027	$	265.0
October 2028	177.7
Total	$	442.7

Senior Notes Original Principal 2016 Tenders, Repurchases and Equity Exchange 2017 Exchange Offers Repurchases 2018 Tender Offers, Redemption and Debt Issuance Remaining Principal
8.50% due 2019 $ 500.0
$ (62.0 ) $ (200.4 ) $ (237.6 ) $ —
6.875% due 2020 900.0
(219.2 ) (229.9 ) (328.0 ) 122.9
4.70% due 2021 1,500.0
(817.0 ) (413.3 ) (156.2 ) 113.5
3.00% Exchangeable senior notes due 2024 849.5
—
—
—
849.5
4.50% due 2024 625.0
(1.7 ) —
—
623.3
8.00% due 2024 —
—
332.0
—
332.0
5.20% due 2025 700.0
(30.7 ) —
—
669.3
7.75% due 2026 —
—
—
1,000.0
1,000.0
7.20% due 2027 150.0
—
—
—
150.0
7.875% due 2040 300.0
—
—
—
300.0
5.75% due 2044 1,025.0
(24.5 ) —
—
1,000.5
Total $ 6,549.5
$ (1,155.1 ) $ (511.6 ) $ 278.2
$ 5,161.0

~~Other Financing~~

We filed an automatically effective shelf registration statement on Form S-3 with the U.S. Securities and Exchange Commission on November 21, 2017, which provides us the ability to issue debt securities, equity securities, guarantees and/or units of securities in one or more offerings. The registration statement expires in November 2020.

Our shareholders approved a new share repurchase program at our annual shareholder meeting held in May 2018. Subject to certain provisions under English law, including the requirement of Ensco plc to have sufficient distributable reserves, we may repurchase shares up to a maximum of $500.0 million in the aggregate from one or more financial intermediaries under the program, but in no case more than 65.0 million shares. The program terminates in May 2023. Our prior share repurchase program approved by our shareholders in 2013, under which we could repurchase up to a maximum of $2.0 billion in the aggregate, not to exceed 35.0 million shares, expired in May 2018. As of December 31, 2018, there had been no share repurchases under this program. In October 2017, we amended our Credit Facility, which prohibits us from repurchasing our shares, except in certain limited circumstances. Any share repurchases, outside of such limited circumstances, would require the amendment or waiver of such provision.

From time to time, we and our affiliates may repurchase our outstanding senior notes in the open market, in privately negotiated transactions, through tender offers, exchange offers or otherwise, or we may redeem senior notes, pursuant to their terms. In connection with any exchange, we may issue equity, issue new debt and/or pay cash consideration. Any future repurchases, exchanges or redemptions will depend on various factors existing at that time. There can be no assurance as to which, if any, of these alternatives (or combinations thereof) we may choose to pursue in the future. There can be no assurance that an active trading market will exist for our outstanding senior notes following any such transaction.

Contractual Obligations

We have various contractual commitments related to our new rig construction and rig enhancement agreements, long-term debt and operating leases. We expect to fund these commitments from existing cash and short-term investments and, if necessary, funds borrowed under our Credit Facility or other future financing arrangements, including available shipyard financing options for our two drillships under construction. The actual timing of our new rig construction and rig enhancement payments may vary based on the completion of various milestones, which are beyond our control. The following table summarizes our significant contractual obligations as of December 31, ~~2018~~2021 and the periods in which such obligations are due (in millions):

Payments due by period
2019 2020 and 2021 2022 and 2023 Thereafter Total
Principal payments on long-term debt $ —
$ 236.4
$ —
$ 4,924.6
$ 5,161.0
Interest payments on long-term debt 298.1
585.2
568.7
1,953.0
3,405.0
New rig construction agreements^{(1) (2)}
92.9
165.0
—
—
257.9
Operating leases 32.3
30.6
18.1
15.2
96.2
Total contractual obligations⁽³⁾
$ 423.3
$ 1,017.2
$ 586.8
$ 6,892.8
$ 8,920.1


	Payments due by period
	2022		2023 and 2024		2025 and 2026		Thereafter		Total
Principal payments on long-term debt	$	—	$	—	$	—	$	550.0	$	550.0
Interest payments on long-term debt(1)	45.4		90.7		90.7		68.1		294.9
Operating leases	11.3		5.3		4.0		6.8		27.4
Total contractual obligations(2)	$	56.7	$	96.0	$	94.7	$	624.9	$	872.3

⁽¹⁾

The remaining milestone payments for ENSCO DS-13 and ENSCO DS-14 bear interest at a rate of 4.5% per annum, which accrues during the holding period until delivery. Delivery is scheduled for September 2019 and June 2020 for ENSCO DS-13 and ENSCO DS-14, respectively. Upon delivery, the remaining milestone payments and accrued interest thereon may be financed through a promissory note with the shipyard for each rig. The promissory notes will bear interest at a rate of 5.0% per annum with a maturity date of December 30, 2022 and will be secured by a mortgage on each respective rig. The remaining milestone payments for ENSCO DS-13 and ENSCO DS-14 are included in the table above in the period in which we expect to take delivery of the rig. However, we may elect to execute the promissory notes and defer payment until December 2022.


⁽²⁾	Total commitments are based on fixed-price shipyard construction contracts, exclusive of our internal costs associated with project management, commissioning and systems integration testing. Total commitments also exclude holding costs and interest.

(1)Interest on the First Lien Notes accrues, at our option, at a rate of: (i) 8.25% per annum, payable in cash; (ii) 10.25% per annum, with 50% of such interest to be payable in cash and 50% of such interest to be paid in kind; or (iii) 12% per annum, with the entirety of such interest to be paid in kind. Interest in the table above assumes 8.25% per annum of cash interest payments.

⁽³⁾

(2)Contractual obligations do not include $320.2 million of unrecognized tax benefits, inclusive of interest and penalties, included on our Consolidated Balance Sheet as of December 31, 2021. We are unable to specify with certainty whether we would be required to and in which periods we may be obligated to settle such amounts.

In connection with our 50/50 joint venture, we have a potential obligation to fund ARO for newbuild jackup rigs. 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, each with a shipyard price of $176.0 million, with the first rig expected to be delivered in the fourth quarter of 2022 and the second rig is expected either late in the fourth quarter or in the first quarter of 2023. ARO is expected to place orders for two additional newbuild jackups in 2022. The joint venture partners intend for the newbuild jackup rigs to be financed out of available cash from ARO's operations and/or funds available from third-party debt financing. ARO paid a 25% down payment from cash on hand for each of the newbuilds ordered in January 2020 and is actively exploring financing options for remaining payments due upon delivery. In the event ARO has insufficient cash from operations or is unable to obtain third-party financing, each partner may periodically be required to make additional capital contributions to ARO, up to a maximum aggregate contribution of $1.25 billion from each partner to fund the newbuild program. Each partner's commitment shall be reduced by the actual cost of each newbuild rig, on a proportionate basis. See "Note 6 - Equity Method Investment in ARO" to our consolidated financial statements included in "Item 8. Financial Statements and Supplementary Data" for additional information on our joint venture.

Prior to our chapter 11 filing, we had contractual commitments for the construction of VALARIS DS-13 and VALARIS DS-14. On February 26, 2021, we entered into amended agreements with the shipyard that became effective upon our emergence from bankruptcy. The amendments provide for, among other things, an option construct whereby the Company has the right, but not the obligation, to take delivery of either or both rigs on or before December 31, 2023. Under the amended agreements, the purchase price for the rigs are estimated to be approximately $119.1 million for VALARIS DS-13 and $218.3 million for VALARIS DS-14, assuming a December 31, 2023 delivery date. Delivery can be requested any time prior to December 31, 2023 with a downward purchase price adjustment based on predetermined terms. If the Company elects not to purchase the rigs, the Company has no further obligations to the shipyard. The amended agreements removed any parent company guarantee.

Contractual obligations do not include $177.0 million of unrecognized tax benefits, inclusive of interest and penalties, included on our consolidated balance sheet as of December 31, 2018. We are unable to specify with certainty the future periods in which we may be obligated to settle such amounts.

Other Commitments

We have other commitments that we are contractually obligated to fulfill with cash under certain circumstances. ~~These commitments include~~As of December 31, 2021, we were contingently liable for an aggregate amount of $36.5 million under outstanding letters of credit towhich guarantee our performance as it relates to our drilling contracts, contract bidding, customs duties, tax appeals and other obligations in various jurisdictions. Obligations under these letters of credit are not normally called, as we typically comply with the underlying performance requirement. As of December 31, ~~2018,~~2021, we had ~~not been required to make~~ collateral deposits in the amount of $31.1 million with respect to these agreements.

The following table summarizes our other commitments as of December 31, ~~2018~~2021 (in millions):


	Commitment expiration by period
	2022		2023 and 2024		2025 and 2026		Thereafter		Total
Letters of credit	$	23.8	$	12.7	$	—	$	—	$	36.5

Commitment expiration by period
2019 2020 and 2021 2022 and 2023 Thereafter Total
Letters of credit $ 105.4
$ 14.7
$ —
$ 6.2
$ 126.3

Tax Assessments

~~Liquidity~~

~~Our liquidity position~~During 2019, the Australian tax authorities issued aggregate tax assessments totaling approximately A$101 million (approximately $73.4 million converted at current period-end exchange rates) plus interest related to the examination of certain of our tax returns for the years 2011 through 2016. During the third quarter of 2019, we made a A$42 million payment (approximately $29 million at then-current exchange rates) to the Australian tax authorities to litigate the assessment. We have an $18 million liability for unrecognized tax benefits relating to these assessments as of December 31, ~~2018, 2017~~2021. We believe our tax returns are materially correct as filed, and ~~2016~~we are vigorously contesting these assessments. Although the outcome of such assessments and related administrative proceedings cannot be predicted with certainty, we do not expect these matters to have a material adverse effect on our financial position, operating results and cash flows. See "Note 1 4 - Income Taxes" to our consolidated financial statements included in "Item 8. Financial Statements and Supplementary Data" for additional information on the tax assessments.

Guarantees of Registered Securities

The First Lien Notes issued by Valaris Limited have been fully and unconditionally guaranteed, jointly and severally, on a senior secured basis, by certain of the direct and indirect subsidiaries (the “Guarantors”) of Valaris Limited under the Indenture governing the First Lien Notes (the “Guarantees”). The First Lien Notes and Guarantees are secured by liens on the collateral, including, among other things, subject to certain agreed security principles, (i) first-priority perfected liens on 100% of the equity interests of each restricted subsidiary directly owned by Valaris Limited or any Guarantor and (ii) a first-priority perfected lien on substantially all assets of Valaris Limited and each Guarantor, in each case subject to certain exceptions and limitations (collectively, the “Collateral”). We are providing the following information about the Guarantors and the Collateral in compliance with Rules 13-01 and 13-02 of Regulation S-X.

First Lien Note Guarantees

The Guarantees are joint and several senior secured obligations of each Guarantor and rank equally in right of payment with existing and future senior indebtedness of such Guarantor and effectively senior to such Guarantor’s existing and future indebtedness (i) that is ~~summarized below (in millions, except ratios):~~not secured by a lien on the Collateral securing the First Lien Notes, or (ii) that is secured by a lien on the Collateral securing the First Lien Notes ranking junior to the liens securing the First Lien Notes. The Guarantees rank effectively junior to such Guarantor’s existing and future secured indebtedness (i) that is secured by a lien on the Collateral that is senior or prior to the lien securing the First Lien Notes, or (ii) that is secured by liens on assets that are not part of the Collateral, to the extent of the value of such assets. The Guarantees rank equally with such Guarantor’s existing and future indebtedness that is secured by first-priority liens on the Collateral and senior in right of payment to any existing and future subordinated indebtedness of such Guarantor. The Guarantees are structurally subordinated to all existing and future indebtedness and other liabilities of any non-Guarantors, including trade payables (other than indebtedness and liabilities owed to such Guarantor).

2018 2017 2016
Cash and cash equivalents $ 275.1
$ 445.4
$ 1,159.7
Short-term investments 329.0
440.0
50.0
Working capital 781.2
853.5
2,424.9
Current ratio 2.5
2.1
3.8
Under the Indenture, a Guarantor may be automatically and unconditionally released and relieved of its obligations under its guarantee under certain circumstances, including: (1) in connection with any sale, transfer or other disposition (including by merger, consolidation, distribution, dividend or otherwise) of all or substantially all of the assets of such Guarantor to a person that is not the Company or a restricted subsidiary, if such sale, transfer or other disposition is conducted in accordance with the applicable terms of the Indenture, (2) in connection with any sale, transfer or other disposition (including by merger, consolidation, amalgamation, distribution, dividend or otherwise) of all of the capital stock of any Guarantor, if such sale, transfer or other disposition is conducted in accordance with the applicable terms of the Indenture, (3) upon our exercise of legal defeasance, covenant defeasance or discharge under the Indenture, (4) unless an event of default has occurred and is continuing, upon the dissolution or liquidation of a Guarantor in accordance with the Indenture, and (5) if such Guarantor is properly designated as an unrestricted subsidiary, in each case in accordance with the provisions of the Indenture.

We ~~expect to fund~~conduct our ~~liquidity needs, including contractual obligations and anticipated capital expenditures, as well as working capital requirements, from~~operations primarily through our cash and short-term investments, and, if necessary, funds borrowed under the Credit Facility or future financing arrangements, including available shipyard financing options for our two drillships under construction. We may rely on the issuance of debt or equity securities in the future to supplement our liquidity needs.

~~Notwithstanding our current liquidity position, if we experience significant further deterioration in demand for offshore drilling,~~subsidiaries. As a result, our ability to ~~maintain a sufficient level of liquidity to meet our financial obligations could be materially~~pay principal and ~~adversely impacted. Further, our access to credit and capital markets depends~~interest on the ~~credit ratings assigned~~First Lien Notes is dependent on the cash flow generated by our subsidiaries and their ability to ~~our~~make such cash available to us by dividend or otherwise. The Guarantors’ earnings will depend on their financial and operating performance, which will be affected by general economic, industry, financial, competitive, operating, legislative, regulatory and other factors beyond their control. Any payments of dividends, distributions, loans or advances to us by the Guarantors could also be subject to restrictions on dividends under applicable local law in the jurisdictions in which the Guarantors operate. In the event that we do not receive distributions from the Guarantors, or to the extent that the earnings from, or other available assets of, the Guarantors are insufficient, we may be unable to make payments on the First Lien Notes.

Pledged Securities of Affiliates

Pursuant to the terms of the First Lien Notes collateral documents, the Collateral Agent under the Indenture may pursue remedies, or pursue foreclosure proceedings on the Collateral (including the equity of the Guarantors and other direct subsidiaries of Valaris Limited and the Guarantors), following an event of default under the Indenture. The Collateral Agent’s ability to exercise such remedies is limited by the intercreditor agreement for so long as any priority lien debt ~~by independent credit rating agencies. Our credit rating~~is outstanding.

The combined value of the affiliates whose securities are pledged as Collateral constitutes substantially all of the Company’s value, including assets, liabilities and results of operations. As such, the assets, liabilities and results of operations of the combined affiliates whose securities are pledged as Collateral are not materially different than the corresponding amounts presented in the consolidated financial statements of the Company. The value of the pledged equity is subject to fluctuations based on factors that include, among other things, general economic conditions and the ability to realize on the Collateral as part of a going concern and in an orderly fashion to available and willing buyers and outside of distressed circumstances. There is no ~~longer investment-grade. Our current credit ratings,~~trading market for the pledged equity interests.

Under the terms of the Indenture and the other documents governing the obligations with respect to the First Lien Notes (the “Notes Documents”), Valaris Limited and the Guarantors will be entitled to the release of the Collateral from the liens securing the First Lien Notes under one or more circumstances, including (1) upon full and final payment of any such obligations; (2) to the extent that proceeds continue to constitute Collateral, in the event that Collateral is sold, transferred, disbursed or otherwise disposed of in accordance with the Notes Documents; (3) upon our exercise of legal defeasance, covenant defeasance or discharge under the Indenture; (4) with respect to vessels, certain specified events permitting release of the mortgage with respect to such vessels under the Indenture; (5) with the consent of the requisite holders under the Indenture; (6) with respect to equity interests in restricted subsidiaries that incur permitted indebtedness, if such equity interests shall secure such other indebtedness and the same is permitted under the terms of the Indenture; and (7) as provided in the intercreditor agreement. The collateral agency agreement also provides for release of the Collateral from the liens securing the Notes under the above described circumstances (but including additional ~~actual or anticipated downgrades~~requirements for release in ~~our credit ratings, could limit our ability~~relation to ~~access credit~~all of the documents governing the indebtedness that is secured by first-priority liens on the Collateral, in addition to the Indenture). Upon the release of any subsidiary from its guarantee, if any, in accordance with the terms of the Indenture, the lien on any pledged equity interests issued by such Guarantor and ~~capital markets, or to restructure or refinance our indebtedness. In addition, future financings or refinancings may result~~on any assets of such Guarantor will automatically terminate.

Summarized Financial Information

The summarized financial information below reflects the combined accounts of the Guarantors and Valaris Limited (collectively, the “Obligors”), for the dates and periods indicated. The financial information is presented on a combined basis and intercompany balances and transactions between entities in ~~higher borrowing costs and require more restrictive terms and covenants, which may further restrict our operations.~~the Obligor group have been eliminated.

Summarized Balance Sheet Information:


	Successor		Predecessor
(in millions)	December 31, 2021		December 31, 2020
ASSETS
Current assets	$	1,140.2	$	901.8
Amounts due from non-guarantor subsidiaries, current	785.8		756.5
Amounts due from related party, current	13.1		20.5
Noncurrent assets	989.8		10,514.5
Amounts due from non-guarantor subsidiaries, noncurrent	1,469.7		4,879.2��
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities	308.0		369.4
Amounts due to non-guarantor subsidiaries, current	55.3		865.5
Amounts due to related party, current	38.3		—
Long-term debt	545.3		—
Noncurrent liabilities	438.5		653.4
Amounts due to non-guarantor subsidiaries, noncurrent	1,921.6		7,848.6
Noncontrolling interest	2.6		(4.4)

Summarized Statement of Operations Information:


	Successor		Predecessor
(in millions)	Eight Months Ended December 31, 2021		Four Months Ended April 30, 2021		Year Ended December 31, 2020		Year Ended December 31, 2019
Operating revenues	$	843.9	$	384.1	$	1,583.1	$	2,344.6
Operating revenues from related party	37.0		23.1		63.0		79.3
Operating costs and expenses	847.5		1,268.2		5,790.1		2,672.2
Reorganization expense	(15.6)		(3,584.1)		12.9		—
Income (loss) from continuing operations before income taxes	174.3		(4,337.0)		(3,688.7)		(511.4)
Net income (loss) attributable to noncontrolling interest	(3.8)		(3.2)		2.1		(5.8)
Net income (loss)	170.5		(4,340.2)		(3,686.6)		(517.2)

Effects of Climate Change and Climate Change Regulation

Greenhouse gas (“GHG”) emissions have increasingly become the subject of international, national, regional, state and local attention. At the December 2015 Conference of the Parties to the United Nations Framework Convention on Climate Change held in Paris, an agreement was reached that requires countries to review and “represent a progression” in their intended nationally determined contributions to the reduction of GHG emissions, setting GHG emission reduction goals every five years beginning in 2020. This agreement, known as the Paris Agreement, entered into force on November 4, 2016 and, as of February 2019, had been ratified by 187 of the 197 parties to the United Nations Framework Convention on Climate Change, including the United Kingdom, the United States and the majority of the other countries in which we operate. However, on August 4, 2017, the United States formally communicated to the United Nations its intent to withdraw from participation in the Paris Agreement. Nevertheless, pursuant to the agreement, withdrawal cannot officially occur earlier than November 4, 2020, four years after the agreement entered into force. In response to the announced withdrawal plan, a number of state and local governments in the United States have expressed intentions to take GHG-related actions by implementing their own programs to reduce GHG emissions.2016. The United Nations Climate Change Conference held in Katowice, Poland in December 2018 adopted further rules regarding the implementation of the Paris Agreement and, in connection with this conference, numerous countries issued commitments to increase their GHG emission reduction targets. Although the United States had withdrawn from the Paris Agreement in November 2020, the current Presidential Administration officially reentered the United States into the agreement in February 2021. It is expected that new executive orders, regulatory action, and/or legislation targeting greenhouse gas emissions, or prohibiting, restricting, or delaying oil and gas development activities in certain areas, will be proposed and/or promulgated. For example, the current Presidential Administration has issued multiple executive orders pertaining to environmental regulations and climate change, including the (1) Executive Order on Protecting Public Health and the Environment and Restoring Science to Tackle the Climate Crisis and (2) Executive Order on Tackling the Climate Crisis at Home and Abroad.The latter executive order announced a moratorium on new oil and gas leasing on federal lands and offshore waters pending completion of a comprehensive review and reconsideration of Federal oil and gas permitting and leasing practices, established climate change as a primary foreign policy and national security consideration and affirmed that achieving net-zero greenhouse gas emissions by or before mid-century is a critical priority. In June 2021, a federal judge for the U.S. District Court of the Western District of Louisiana issued a nationwide preliminary injunction against the pause of oil and natural gas leasing on public lands or in offshore waters while litigation challenging that aspect of the executive order is ongoing. On January 27, 2022, the United States District Court for the District of Columbia found that the Bureau of Ocean Energy Management’s failure to calculate the potential emissions from foreign oil consumption violated the agency’s approval of oil and gas leases in the Gulf of Mexico under the National Environmental Policy Act. The full impact of these federal actions, or any other future restrictions or prohibitions, remains unclear.

In an effort to reduce GHG emissions, governments have implemented or considered legislative and regulatory mechanisms to institute carbon pricing mechanisms, such as the European Union’s Emission Trading System, and to impose technical requirements to reduce carbon emissions. The Companies Act 2006 (Strategic and Directors' Reports) Regulations 2013 now requires all quoted U.K. companies, including Ensco plc, to report their annual GHG emissions in the Company's directors' report.

During 2009, the United States Environmental Protection Agency (the “EPA”) officially published its findings that emissions of carbon dioxide, methane and other GHGs present an endangerment to human health and the environment because emissions of such gases are, according to the EPA, contributing to warming of the earth’s atmosphere and other climatic changes. These findings allowed the agency to proceed with the adoption and implementation of regulations to restrict GHG emissions under existing provisions of the Clean Air Act that establish permitting requirements, including emissions control technology requirements, for certain large stationary sources that are potential major sources of GHG emissions. These requirements for stationary sources took effect on January 2, 2011; however, in June 2014 the U.S. Supreme Court reversed a D.C. Circuit Court of Appeals decision upholding these rules and struck down the EPA’s greenhouse gas permitting rules to the extent they impose a requirement to obtain a federal air permit based solely on emissions of greenhouse gases. Large sources of other air pollutants, such as VOC or nitrogen oxides, could still be required to implement process or technology controls and obtain permits regarding emissions of greenhouse gases. The EPA has also adopted rules requiring annual monitoring and reporting of GHG emissions from specified sources in the U.S., including, among others, certain onshore and offshore oil and natural gas production facilities. Although a number of bills related to climate change have been introduced in the U.S. Congress in the past, comprehensive federal climate legislation has not yet been passed by Congress. If such legislation were to be adopted in the U.S., such legislation could adversely impact many industries. In the absence of federal legislation, almost half of the states have begun to address GHG emissions, primarily through the development or planned development of emission inventories or regional GHG cap and trade ~~programs.~~programs and commitments to contribute to meeting the goals of the Paris Agreement.

Future regulation of GHG emissions could occur pursuant to future treaty obligations, statutory or regulatory changes or new climate change legislation in the jurisdictions in which we operate. Depending on the particular program, we, or our customers, could be required to control GHG emissions or to purchase and surrender allowances for GHG emissions resulting from our operations. It is uncertain whether any of these initiatives will be implemented. If such initiatives are implemented, we do not believe that such initiatives would have a direct, material adverse effect on our financial condition, operating results and cash flows in a manner different than our competitors.

Restrictions on GHG emissions or other related legislative or regulatory enactments could have an indirect effect in those industries that use significant amounts of petroleum products, which could potentially result in a reduction in demand for petroleum products and, consequently, our offshore contract drilling services. We are currently unable to predict the manner or extent of any such effect. Furthermore, one of the long-term physical effects of climate change may be an increase in the severity and frequency of adverse weather conditions, such as hurricanes, which may increase our insurance costs or risk retention, limit insurance availability or reduce the areas in which, or the number of days during which, our customers would contract for our drilling rigs in general and in the Gulf of Mexico in particular. We are currently unable to predict the manner or extent of any such effect.

In addition, ~~there have also been efforts~~ in recent years ~~to influence~~ the investment community, including investment advisors and certain sovereign wealth, pension and endowment funds, ~~promoting~~has promoted divestment of fossil fuel equities and ~~pressuring~~pressured lenders to cease or limit funding to companies engaged in the extraction of fossil fuel reserves. Such environmental ~~activism and~~ initiatives aimed at limiting climate change and reducing air pollution could ultimately interfere with our business activities and operations. Finally, increasing attention to the risks of climate change has resulted in an increased possibility of lawsuits brought by public and private entities against oil and gas companies in connection with their greenhouse gas emissions. Should we be targeted by any such litigation, 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 company’s causation of or contribution to the asserted damage, or to other mitigating factors.

~~MARKET RISK~~

We use derivatives to reduce our exposure to foreign currency exchange rate risk. Our functional currency is the U.S. dollar. As is customary in the oil and gas industry, a majority of our revenues and expenses are denominated in U.S. dollars; however, a portion of the revenues earned and expenses incurred by certain of our subsidiaries are denominated in currencies other than the U.S. dollar. We maintain a foreign currency exchange rate risk management strategy that utilizes derivatives to reduce our exposure to unanticipated fluctuations in earnings and cash flows caused by changes in foreign currency exchange rates.

We utilize cash flow hedges to hedge forecasted foreign currency denominated transactions, primarily to reduce our exposure to foreign currency exchange rate risk on future expected contract drilling expenses and capital expenditures denominated in various foreign currencies. We predominantly structure our drilling contracts in U.S. dollars, which significantly reduces the portion of our cash flows and assets denominated in foreign currencies. As of December 31, 2018, we had cash flow hedges outstanding to exchange an aggregate $187.8 million for various foreign currencies.

We have net assets and liabilities denominated in numerous foreign currencies and use various strategies to manage our exposure to changes in foreign currency exchange rates. We occasionally enter into derivatives that hedge the fair value of recognized foreign currency denominated assets or liabilities, thereby reducing exposure to earnings fluctuations caused by changes in foreign currency exchange rates. We do not designate such derivatives as hedging instruments. In these situations, a natural hedging relationship generally exists whereby changes in the fair value of the derivatives offset changes in the carrying value of the underlying hedged items. As of December 31, 2018, we held derivatives not designated as hedging instruments to exchange an aggregate $175.7 million for various foreign currencies.

If we were to incur a hypothetical 10% adverse change in foreign currency exchange rates, net unrealized losses associated with our foreign currency denominated assets and liabilities as of December 31, 2018 would approximate $17.3 million. Approximately $12.5 million of these unrealized losses would be offset by corresponding gains on the derivatives utilized to offset changes in the fair value of net assets and liabilities denominated in foreign currencies.

We utilize derivatives and undertake foreign currency exchange rate hedging activities in accordance with our established policies for the management of market risk. We mitigate our credit risk relating to counterparties of our derivatives through a variety of techniques, including transacting with multiple, high-quality financial institutions, thereby limiting our exposure to individual counterparties and by entering into International Swaps and Derivatives Association, Inc. (“ISDA”) Master Agreements, which include provisions for a legally enforceable master netting agreement, with our derivative counterparties. The terms of the ISDA agreements may also include credit support requirements, cross default provisions, termination events or set-off provisions. Legally enforceable master netting agreements reduce credit risk by providing protection in bankruptcy in certain circumstances and generally permitting the closeout and netting of transactions with the same counterparty upon the occurrence of certain events.

We do not enter into derivatives for trading or other speculative purposes. We believe that our use of derivatives and related hedging activities reduces our exposure to foreign currency exchange rate risk and does not expose us to material credit risk or any other material market risk. All our derivatives mature during the next 18 months. See Note 7 to our consolidated financial statements included in "Item 8. Financial Statements and Supplementary Data" for additional information on our derivative instruments.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The preparation of financial statements and related disclosures in conformity with accounting principles generally accepted in the United States of America requires us to make estimates, judgments and assumptions that affect the amounts reported in our consolidated financial statements and accompanying notes. Concurrent with our emergence from bankruptcy, we applied fresh start accounting and elected to change our accounting policies related to property and equipment as well as materials and supplies see "Note 1 - Description of the Business and Summary of Significant Accounting Policies" to our consolidated financial statements included in "Item 8. Financial Statements and Supplementary Data" for more information. Our significant accounting policies are included in "Note 1 - Description of the Business and Summary of Significant Accounting Policies" to our consolidated financial ~~statements.~~statements included in "Item 8. Financial Statements and Supplementary Data". These policies, along with our underlying judgments and assumptions made in their application, have a significant impact on our consolidated financial statements.

We identify our critical accounting policies as those that are the most pervasive and important to the portrayal of our financial position and operating results and that require the most difficult, subjective and/or complex judgments regarding estimates in matters that are inherently uncertain. Our critical accounting policies are those related to property and equipment, impairment of ~~long-lived assets~~property and equipment, income ~~taxes.~~taxes and pension and other post-retirement benefits.

Property and Equipment

Concurrent with our emergence from bankruptcy, we applied fresh start accounting and adjusted the carrying value of our drilling rigs to estimated fair value. See "Note 3 - Fresh Start Accounting" to our consolidated financial statements included in "Item 8. Financial Statements and Supplementary Data" for more information. As of December 31, ~~2018~~,2021, the carrying value of our property and equipment totaled ~~$12.6 billion~~,$890.9 million, which represented ~~90%~~34% of total assets. This carrying value reflects the application of our property and equipment accounting policies, which incorporate our estimates, judgments and assumptions relative to the capitalized costs, useful lives and salvage values of our rigs.

We develop and apply property and equipment accounting policies that are designed to appropriately and consistently capitalize those costs incurred to enhance, improve and extend the useful lives of our assets and expense those costs incurred to repair or maintain the existing condition or useful lives of our assets. The development and application of such policies requires estimates, judgments and assumptions relative to the nature of, and benefits from, expenditures on our assets. We establish property and equipment accounting policies that are designed to depreciate our assets over their estimated useful lives.

Prior to emergence from bankruptcy, we recorded our drilling rigs as a single asset with a useful life ascribed by the expected useful life of that asset. Upon emergence, we identified the significant components of our drilling rigs and ascribed useful lives based on the expected time until the next required overhaul or the end of the expected economic lives of the components.

The judgments and assumptions used in determining the ~~useful~~next overhaul or the economic lives of the components of our property and equipment reflect both historical experience and expectations regarding future operations, utilization and performance of our assets. The use of different estimates, judgments and assumptions in the establishment of our property and equipment accounting policies, especially those involving the useful lives of the significant components our rigs, would likely result in materially different asset carrying values and operating results.

The useful lives of our drilling rigs are difficult to estimate due to a variety of factors, including technological advances that impact the methods or cost of oil and natural gas exploration and development, changes in market or economic conditions and changes in laws or regulations affecting the drilling industry. We evaluate the remaining useful lives of our rigs on a periodic basis, considering operating condition, functional capability and market and economic factors.

Property and equipment held-for-sale is recorded at the lower of net book value or fair value less cost to sell.

During 2018, we recorded a pre-tax, non-cash loss on impairment of $40.3 million related to one older non-core jackup rig. We estimate the aforementioned impairment will cause a decline in depreciation expense of approximately $13.1 million for the year ended December 31, 2019.

Our fleet of 2216 floater rigs ~~excluding two rigs under construction,~~ represented ~~69%~~45% of the gross cost and ~~70%~~the net carrying amount of our depreciable property and equipment as of December 31, ~~2018. Our floater rigs are depreciated over useful lives ranging from 10 to 35 years.~~2021. Our fleet of 3433 jackup rigs ~~excluding~~ ~~one~~ ~~rig under construction,~~ represented ~~23%~~44% of the gross cost and ~~21% of~~ the net carrying amount of our depreciable property and equipment as of December 31, ~~2018. Our jackup rigs are depreciated over useful lives ranging from 10~~2021.

Impairment of Property and Equipment

We do not consider Impairment of Property and Equipment to be a critical accounting policy for Valaris Limited (Successor) due to the significantly reduced carrying values. However, for Legacy Valaris (Predecessor), this was a critical accounting policy and have included disclosure below for historical periods.

During the four months ended April 30, ~~years.~~

~~The following table provides~~2021, we recorded an ~~analysis~~aggregate pre-tax, non-cash impairment with respect to certain floaters of ~~estimated increases and decreases in depreciation expense from continuing operations that would have been recognized for~~$756.5 million. During the year ended December 31, ~~2018~~ ~~for various assumed changes in~~2020 and the ~~useful lives of our drilling rigs effective January 1, 2018:~~

Increase (decrease) in
useful lives of our
drilling rigs

Estimated (decrease) increase in
depreciation expense that would
have been recognized (in millions)
10% $(38.6)
20% (70.7)
(10%) 45.1
(20%) 101.7

~~Impairment of Long-Lived Assets~~

Weyear ended December 31, 2019, we recorded an aggregate pre-tax, non-cash ~~losses on~~ impairment with respect to certain floaters, jackups and spare equipment of ~~long-lived assets of $40.3~~$3.6 billion and $98.4 million, ~~and $182.9 millionduring 2018 and 2017,~~ respectively. See "Note 5 8 - Property and Equipment" to our consolidated financial statements included in "Item 8. Financial Statements and Supplementary Data" for additional information on our impairments of property and equipment.

We evaluate the carrying value of our property and equipment, primarily our drilling rigs, ~~when~~on a quarterly basis to identify events or changes in circumstances ("triggering events") that indicate that the carrying value of such rigs may not be recoverable. Generally, extended periods of idle time and/or inability to contract rigs at economical rates are an indication that a rig may be impaired. Impairment situations may arise with respect to specific individual rigs, groups of rigs, such as a specific type of drilling rig, or rigs in a certain geographic location.

For property and equipment used in our operations, recoverability generally is determined by comparing the carrying value of an asset to the expected undiscounted future cash flows of the asset. If the carrying value of an asset is not recoverable, the amount of impairment loss is measured as the difference between the carrying value of the asset and its estimated fair value. The determination of expected undiscounted cash flow amounts requires significant estimates, judgments and assumptions, including utilization levels, day rates, expense levels and capital requirements, as well as cash flows generated upon disposition, for each of our drilling rigs. Due to the inherent uncertainties associated with these estimates, we perform sensitivity analysis on key assumptions as part of our recoverability test.

Our judgments and assumptions about future cash flows to be generated by our drilling rigs are highly subjective and based on consideration of the following:

•global macroeconomic and political environment,

•historical utilization, day rate and operating expense trends by asset class,

•regulatory requirements such as surveys, inspections and recertification of our rigs,

•remaining useful lives of our rigs,

•expectations on the use and eventual disposition of our rigs,

•weighted-average cost of capital,

•oil price projections,

•sanctioned and unsanctioned offshore project data,

•offshore economic project break-even data,

•global rig supply and construction orders,

•global rig fleet capabilities and relative rankings, and

•expectations of global rig fleet attrition.

current industry downturn. However, there are numerous judgments and assumptions unique to the projected future cash flows of each rig that individually, and in the aggregate, can significantly impact the recoverability of its carrying value.

The highly cyclical nature of our industry cannot be reasonably predicted with a high level of accuracy and, therefore, differences between our historical judgments and assumptions and actual results will occur. We reassess our judgments and assumptions in the period in which significant differences are observed and may conclude that a triggering event has occurred and perform a recoverability test. We recognized impairment charges ~~during 2014, 2015, 2017 and 2018~~in recent periods upon observation of significant unexpected changes in our business climate and estimated useful lives of certain assets.

There are numerous factors underlying the highly cyclical nature of our industry that are reasonably likely to impact our judgments and assumptions including, but not limited to, the following:

•changes in global economic conditions and demand,

•production levels of the Organization of Petroleum Exporting Countries (“OPEC”),

•production levels of non-OPEC countries,

•advances in exploration and development technology,

•offshore and onshore project break-even economics,

•development and exploitation of alternative fuels,

•natural disasters or other operational hazards,

•changes in relevant law and governmental regulations,

•political instability and/or escalation of military actions in the areas we operate,

•changes in the timing and rate of global newbuild rig construction, and

•changes in the timing and rate of global rig fleet attrition.

There is a wide range of interrelated changes in our judgments and assumptions that could reasonably occur as a result of unexpected developments in the aforementioned factors, which could result in materially different carrying values for an individual rig, group of rigs or our entire rig fleet, materially impacting our operating results.

Income Taxes

We conduct operations and earn income in numerous countries and are subject to the laws of numerous tax jurisdictions. As of December 31, ~~2018~~,2021, our ~~consolidated balance sheet~~Consolidated Balance Sheet included ~~a $41.3~~an $47.3 million net deferred income tax ~~liability~~,asset, a ~~$24.8~~$31.0 million liability for income taxes currently payable and a ~~$177.0~~$320.2 million liability for unrecognized tax benefits, inclusive of interest and penalties.

The carrying values of deferred income tax assets and liabilities reflect the application of our income tax accounting policies and are based on estimates, judgments and assumptions regarding future operating results and levels of taxable income. Carryforwards and tax credits are assessed for realization as a reduction of future taxable income by using a more-likely-than-not determination. We do not offset deferred tax assets and deferred tax liabilities attributable to different tax paying jurisdictions.

We do not provide deferred taxes on the undistributed earnings of certain subsidiaries because our policy and intention is to reinvest such earnings indefinitely. Should we make a distribution from these subsidiaries in the form of dividends or otherwise, we may be subject to additional income taxes.

The carrying values of liabilities for income taxes currently payable and unrecognized tax benefits are based on our interpretation of applicable tax laws and incorporate estimates, judgments and assumptions regarding the use of tax planning strategies in various taxing jurisdictions. The use of different estimates, judgments and assumptions in connection with accounting for income taxes, especially those involving the deployment of tax planning strategies, may result in materially different carrying values of income tax assets and liabilities and operating results.

We operate in several jurisdictions where tax laws relating to the offshore drilling industry are not well developed. In jurisdictions where available statutory law and regulations are incomplete or underdeveloped, we obtain professional guidance and consider existing industry practices before utilizing tax planning strategies and meeting our tax obligations.

Tax returns are routinely subject to audit in most jurisdictions and tax liabilities occasionally are finalized through a negotiation process. In some jurisdictions, income tax payments may be required before a final income tax obligation is determined in order to avoid significant penalties and/or interest. While we historically have not experienced significant adjustments to previously recognized tax assets and liabilities as a result of finalizing tax returns, there can be no assurance that significant adjustments will not arise in the future. In addition, there are several factors that could cause the future level of uncertainty relating to our tax liabilities to increase, including the following:

•During recent years, the number of tax jurisdictions in which we conduct operations has ~~increased, and we currently anticipate that this trend will continue.~~increased.

•In order to utilize tax planning strategies and conduct operations efficiently, our subsidiaries frequently enter into transactions with affiliates that are generally subject to complex tax regulations and are frequently reviewed and challenged by tax authorities.

•We may conduct future operations in certain tax jurisdictions where tax laws are not well developed, and it may be difficult to secure adequate professional guidance.

•Tax laws, regulations, agreements, treaties and the administrative practices and precedents of tax authorities change frequently, requiring us to modify existing tax strategies to conform to such changes.

~~We recognized the impact~~

Pension and Other Postretirement Benefits

Our pension and other postretirement benefit liabilities and costs are based upon actuarial computations that reflect our assumptions about future events, including long-term asset returns, interest rates, annual compensation increases, mortality rates and other factors. Key assumptions at December 31, 2021, included (1) a weighted average discount rate of 2.73% to determine pension benefit obligations, (2) a weighted average discount rate of 2.84% to determine net periodic pension cost and (3), an expected long-term rate of return on pension plan assets of 6.03% to determine net periodic pension cost. Upon emergence, our pension and other post retirement plans were remeasured as of the ~~enactment~~Effective Date. Key assumptions at the Effective Date included (1) a weighted average discount rate of ~~U.S. tax reform during~~2.81% to determine pension benefit obligations and (2) an expected long-term rate of return on pension plan assets of 6.03% to determine net periodic pension cost. The assumed discount rate is based upon the ~~fourth quarter~~average yield for Moody’s Aa-rated corporate bonds, and the rate of ~~2017~~return assumption reflects a probability distribution of expected long-term returns that is weighted based upon plan asset allocations. Using our key assumptions at December 31, 2021, a one-percentage-point decrease in the assumed discount rate would increase our recorded pension and other postretirement benefit liabilities by approximately $109.1 million, while a one-percentage-point decrease (increase) in the expected long-term rate of return on ~~a provisional basis. Throughout 2018,~~plan assets would increase (decrease) annual net benefits cost by approximately $4.1 million. To develop the expected long-term rate of return on assets assumption, we ~~continued to analyze applicable information and data, interpret rules and guidance issued by~~considered the ~~U.S. Treasury Department and Internal Revenue Service, and make adjustments to~~current level of expected returns on risk-free investments (primarily government bonds), the ~~provisional amounts as provided for in Staff Accounting Bulletin No. 118. The U.S. Treasury Department is expected to continue finalizing rules~~historical level of the risk premium associated with ~~U.S. tax reform during 2019~~the plans’ other asset classes, and ~~when issued, these rules may have a material impact~~the expectations for future returns of each asset class. The expected return for each asset class was then weighted based upon the current asset allocation to develop the expected long-term rate of return on assets assumption for the plan, which increased to 6.26% at December 31, 2021 from 6.03% at December 31, 2020. See "Note 1 3 - Pension and Other Post Retirement Benefits" to our consolidated financial ~~statements.~~statements included in "Item 8. Financial Statements and Supplementary Data" for information on our pension and other postretirement benefit plans.

NEW ACCOUNTING PRONOUNCEMENTS

See "Note 1 - Description of the Business and Summary of Significant Accounting Policies" to our consolidated financial statements included in "Item 8. Financial Statements and Supplementary Data" for information on new accounting pronouncements.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

~~Information required under Item 7A. has been incorporated into "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - Market Risk."~~Not applicable.

Item 8. Financial Statements and Supplementary Data

MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f) or 15d-15(f). Our internal control over financial reporting system is designed to provide reasonable assurance as to the reliability of our financial reporting and the preparation and presentation of consolidated financial statements in accordance with accounting principles generally accepted in the United States, as well as to safeguard assets from unauthorized use or disposition. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Under the supervision and with the participation of management, including the Chief Executive Officer and Interim Chief Financial Officer, we have conducted an evaluation of the effectiveness of our internal control over financial reporting based on the criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on this evaluation, we have concluded that our internal control over financial reporting is effective as of December 31, ~~2018~~2021 to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

KPMG LLP, the independent registered public accounting firm who audited our consolidated financial statements, has issued an audit report on our internal control over financial reporting. KPMG LLP's audit report on our internal control over financial reporting is included herein.

February ~~28, 2019~~

22, 2022

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders

~~Ensco plc:~~Valaris Limited:

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheets of ~~Ensco plc~~Valaris Limited and subsidiaries (the Company) as of December 31, ~~2018~~2021 (Successor) and ~~2017,~~2020 (Predecessor), the related consolidated statements of operations, comprehensive ~~income (loss),~~loss, and cash flows for the periods from May 1, 2021 to December 31, 2021 (Successor period) and from January 1, 2021 to April 30, 2021 and for each of the years in the ~~three‑year~~two-year period ended December 31, ~~2018~~2020 (Predecessor periods), and the related notes (collectively, the ~~“consolidated~~consolidated financial ~~statements”)~~statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, ~~2018~~2021 (Successor) and ~~2017,~~2020(Predecessor), and the results of its operations and its cash flows for ~~each of~~ the ~~years in the three‑year period ended December 31, 2018,~~Successor and Predecessor periods, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) ~~(“PCAOB”)~~(PCAOB), the Company’s internal control over financial reporting as of December 31, ~~2018,~~2021, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated February ~~28, 2019~~22, 2022 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.

New Basis of Presentation

As discussed in Note 1 to the consolidated financial statements, on March 3, 2021, the Bankruptcy Court for the Southern District of Texas entered an order confirming the Company's plan for reorganization under Chapter 11, which became effective on April 30, 2021. Accordingly, the accompanying consolidated financial statements as of December 31, 2021 and for the Successor period have been prepared in conformity with Accounting Standards Codification 852, Reorganization, with the Company's assets, liabilities, and capital structure having carrying amounts not comparable with prior periods.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

~~/s/~~

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter

in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Valuation of drilling rigs upon emergence from bankruptcy

As disclosed in Note 3 to the consolidated financial statements, on April 30, 2021, the Company satisfied all conditions to effect its Plan of Reorganization and emerged from Chapter 11 bankruptcy. In connection with its emergence and in accordance with ASC 852, the Company qualified for and applied fresh start accounting. The Company involved third-party valuation advisors to assist with the valuation process of certain assets valued in fresh start. The Company's principal assets are its property and equipment, which is primarily comprised of the drilling rigs. As part of fresh start accounting, management recorded property, plant and equipment of $909.1 million, a portion of which related to the drilling rigs. The valuation of the Company's drilling rigs was estimated using an income approach or estimated sales price.

We identified the valuation of the Company's drilling rigs upon emergence from bankruptcy as a critical audit matter. A higher degree of subjective auditor judgment was required to evaluate the methodology used in the application of the adjustment to reconcile the fair value of the drilling rigs to the reorganization value and certain assumptions used in the Company's determination of fair value of its drilling rigs using the income approach. Specifically, future day rates and utilization associated with rig stacking assumptions were based on unobservable inputs for which there was limited information. In addition, the audit effort involved the use of professionals with specialized skills and knowledge.

The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested the operating effectiveness of certain internal controls related to the emergence date valuation process. This included controls related to management's valuation methodology and the application of fresh start accounting, including application of the adjustment to reconcile the fair value of the drilling rigs to the reorganization value, and controls related to the development of the future day rates and utilization associated with rig stacking assumptions used in the valuation of the drilling rigs. We evaluated the reasonableness of the future day rates used in the income approach by comparing them to contractual agreements with consideration of the current industry environment and economic trends, including third-party forecasted oil prices and demand curves. We evaluated the reasonableness of the utilization associated with rig stacking assumptions by comparing the timing of scheduled rig reactivations to third-party demand and supply forecasts. We involved valuation professionals with specialized skills and knowledge who assisted in evaluating the accuracy of management's model in applying the methodology used in the application of the adjustment to reconcile the valuation of the drilling rigs to the reorganization value. We also involved professionals with specialized skills and knowledge who assisted in evaluating the appropriateness of the methodology used in the application of the adjustment to reconcile the valuation of the drilling rigs to the reorganization value.

Income tax positions pertaining to certain tax transactions

As discussed in Note 1 and 14 to the consolidated financial statements, the Company evaluates the income tax effect of certain transactions which often requires local country tax expertise and judgment. This requires the Company to interpret complex tax laws in multiple jurisdictions to assess whether its tax positions have a more than 50 percent likelihood of being sustained with the taxing authorities.

We identified the assessment of income tax positions pertaining to certain tax transactions as a critical audit matter. Complex auditor judgment was required to evaluate the Company's assessment that certain tax positions have a more than 50 percent likelihood of being sustained with the taxing authorities. In addition, specialized skills and knowledge were required to evaluate the Company's interpretation of tax laws in the applicable jurisdictions.

The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested the operating effectiveness of certain internal controls over the Company's income tax process. This included controls related to the interpretation of tax laws applicable to certain transactions and the assessment that tax positions pertaining to those transactions have a more than 50 percent likelihood of being sustained with taxing authorities. We involved tax professionals with specialized skills and knowledge, who assisted in evaluating the Company's interpretation of local tax laws and assessment of whether tax positions had a greater than 50 percent likelihood of being sustained with taxing authorities.

/s/ KPMG LLP

We have served as the Company’s auditor since 2002.

Houston, Texas

February 22, 2022

~~February 28, 2019~~

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders

~~Ensco plc:~~Valaris Limited:

Opinion on Internal Control Over Financial Reporting

We have audited ~~Ensco plc~~Valaris Limited and subsidiaries’ (the Company) internal control over financial reporting as of December 31, ~~2018,~~2021, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, ~~2018,~~2021, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, ~~2018~~2021 (Successor) and ~~2017,~~2020 (Predecessor), the related consolidated statements of operations, comprehensive ~~income (loss),~~loss, and cash flows for the periods from May 1, 2021 to December 31, 2021 (Successor period) and from January 1, 2021 to April 30, 2021 and for each of the years in the ~~three-year~~two-year period ended December 31, ~~2018,~~2020 (Predecessor periods), and the related notes (collectively, the consolidated financial statements), and our report dated February ~~28, 2019~~22, 2022 expressed an unqualified opinion on those consolidated financial statements.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report Onon Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control Over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ KPMG LLP

Houston, Texas

February ~~28, 2019~~

22, 2022

~~ENSCO PLC~~

VALARIS LIMITED AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(in millions, except per share amounts)


	Successor		Predecessor
	Eight Months Ended December 31, 2021		Four Months Ended April 30, 2021		Year Ended December 31, 2020		Year Ended December 31, 2019
OPERATING REVENUES	$	835.0	$	397.4	$	1,427.2	$	2,053.2
OPERATING EXPENSES
Contract drilling (exclusive of depreciation)	728.7		343.8		1,470.4		1,807.8
Loss on impairment	—		756.5		3,646.2		104.0
Depreciation	66.1		159.6		540.8		609.7
General and administrative	58.2		30.7		214.6		188.9
Total operating expenses	853.0		1,290.6		5,872.0		2,710.4
OTHER OPERATING INCOME	—		—		118.1		—
EQUITY IN EARNINGS (LOSSES) OF ARO	6.1		3.1		(7.8)		(12.6)
OPERATING LOSS	(11.9)		(890.1)		(4,334.5)		(669.8)
OTHER INCOME (EXPENSE)
Interest income	28.5		3.6		19.7		28.1
Interest expense, net (Unrecognized contractual interest expense for debt subject to compromise was $132.9 million and $140.7 million for the four months ended April 30, 2021 and the year ended December 31, 2020, respectively)	(31.0)		(2.4)		(290.6)		(428.3)
Reorganization items, net	(15.5)		(3,584.6)		(527.6)		—
Other, net	38.1		25.9		16.0		1,006.2
	20.1		(3,557.5)		(782.5)		606.0
INCOME (LOSS) BEFORE INCOME TAXES	8.2		(4,447.6)		(5,117.0)		(63.8)
PROVISION (BENEFIT) FOR INCOME TAXES
Current income tax expense (benefit)	58.7		34.4		(153.7)		104.5
Deferred income tax expense (benefit)	(21.3)		(18.2)		(105.7)		23.9
	37.4		16.2		(259.4)		128.4


NET LOSS	(29.2)		(4,463.8)		(4,857.6)		(192.2)
NET (INCOME) LOSS ATTRIBUTABLE TO NONCONTROLLING INTERESTS	(3.8)		(3.2)		2.1		(5.8)
NET LOSS ATTRIBUTABLE TO VALARIS	$	(33.0)	$	(4,467.0)	$	(4,855.5)	$	(198.0)
LOSS PER SHARE - BASIC AND DILUTED	$	(0.44)	$	(22.38)	$	(24.42)	$	(1.14)
WEIGHTED-AVERAGE SHARES OUTSTANDING
Basic and Diluted	75.0		199.6		198.9		173.4

Year Ended December 31,
2018 2017 2016
OPERATING REVENUES $ 1,705.4
$ 1,843.0
$ 2,776.4
OPERATING EXPENSES

Contract drilling (exclusive of depreciation) 1,319.4
1,189.5
1,301.0
Loss on impairment 40.3
182.9
—
Depreciation 478.9
444.8
445.3
General and administrative 102.7
157.8
100.8
1,941.3
1,975.0
1,847.1
OPERATING INCOME (LOSS) (235.9 ) (132.0 ) 929.3
OTHER INCOME (EXPENSE)

Interest income 14.5
25.8
13.8
Interest expense, net (282.7 ) (224.2 ) (228.8 )
Other, net (34.8 ) 134.4
283.2
(303.0 ) (64.0 ) 68.2
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES (538.9 ) (196.0 ) 997.5
PROVISION FOR INCOME TAXES

Current income tax expense 33.0
54.2
79.8
Deferred income tax expense 56.6
55.0
28.7
89.6
109.2
108.5
INCOME (LOSS) FROM CONTINUING OPERATIONS (628.5 )
(305.2 )
889.0
INCOME (LOSS) FROM DISCONTINUED OPERATIONS, NET (8.1 ) 1.0
8.1
NET INCOME (LOSS) (636.6 ) (304.2 ) 897.1
NET (INCOME) LOSS ATTRIBUTABLE TO NONCONTROLLING INTERESTS (3.1 ) .5
(6.9 )
NET INCOME (LOSS) ATTRIBUTABLE TO ENSCO $ (639.7 ) $ (303.7 ) $ 890.2
EARNINGS (LOSS) PER SHARE - BASIC AND DILUTED

Continuing operations $ (1.45 ) $ (0.91 ) $ 3.10
Discontinued operations (0.02 ) —
0.03
$ (1.47 ) $ (0.91 ) $ 3.13

WEIGHTED-AVERAGE SHARES OUTSTANDING
Basic and Diluted 434.1
332.5
279.1

~~The accompanying notes are an integral part of these consolidated financial statements.~~

~~ENSCO PLC AND SUBSIDIARIES~~

~~CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)~~

~~(in millions)~~

Year Ended December 31,
2018 2017 2016
NET INCOME (LOSS) $ (636.6 ) $ (304.2 ) $ 897.1
OTHER COMPREHENSIVE INCOME (LOSS), NET
Net change in fair value of derivatives (9.7 ) 8.5
(5.4 )
Reclassification of net (gains) losses on derivative instruments from other comprehensive income (loss) into net income (loss) (1.0 ) .4
12.4
Other (.5 ) .7
(.5 )
NET OTHER COMPREHENSIVE INCOME (LOSS) (11.2 ) 9.6
6.5

COMPREHENSIVE INCOME (LOSS) (647.8 ) (294.6 ) 903.6
COMPREHENSIVE (INCOME) LOSS ATTRIBUTABLE TO NONCONTROLLING INTERESTS (3.1 ) .5
(6.9 )
COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO ENSCO $ (650.9 ) $ (294.1 ) $ 896.7

The accompanying notes are an integral part of these consolidated financial statements.

VALARIS LIMITED AND SUBSIDIARIES

~~ENSCO PLC~~CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(in millions)


	Successor		Predecessor
	Eight Months Ended December 31, 2021		Four Months Ended April 30, 2021		Year Ended December 31, 2020		Year Ended December 31, 2019
NET LOSS	$	(29.2)	$	(4,463.8)	$	(4,857.6)	$	(192.2)
OTHER COMPREHENSIVE LOSS, NET
Net changes in pension and other postretirement plan assets and benefit obligations recognized in other comprehensive loss, net of income tax benefit of $5.9 million for the year ended December 31, 2019. No income tax benefit was recognized during the eight months ended December 31, 2021 (Successor), four months ended April 30, 2021 (Predecessor), and year ended December 31, 2020 (Predecessor).	(9.1)		0.1		(76.3)		(21.7)
Net change in fair value of derivatives	—		—		(5.4)		1.6
Amortization of settlement gain, net of income tax expense of $0.1 million for the year ended December 31, 2020	—		—		(0.2)		—
Reclassification of net (gains) losses on derivative instruments from other comprehensive loss into net loss	—		(5.6)		(11.6)		8.3
Other	—		—		(0.6)		(0.2)
NET OTHER COMPREHENSIVE LOSS	(9.1)		(5.5)		(94.1)		(12.0)
COMPREHENSIVE LOSS	(38.3)		(4,469.3)		(4,951.7)		(204.2)
COMPREHENSIVE (INCOME) LOSS ATTRIBUTABLE TO NONCONTROLLING INTERESTS	(3.8)		(3.2)		2.1		(5.8)
COMPREHENSIVE LOSS ATTRIBUTABLE TO VALARIS	$	(42.1)	$	(4,472.5)	$	(4,949.6)	$	(210.0)

The accompanying notes are an integral part of these consolidated financial statements.

VALARIS LIMITED AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(in millions, except share and par value amounts)


								Successor		Predecessor
	December 31,							December 31, 2021		December 31, 2020
ASSETS	2018			2017			ASSETS
CURRENT ASSETS							CURRENT ASSETS
Cash and cash equivalents	$	275.1		$	445.4		Cash and cash equivalents	$	608.7	$	325.8
Short-term investments	329.0			440.0

Restricted cash							Restricted cash	35.9		11.4
Accounts receivable, net	344.7			345.4			Accounts receivable, net	444.2		449.2
Other	360.9			381.2
Other current assets							Other current assets	117.8		386.5
Total current assets	1,309.7			1,612.0			Total current assets	1,206.6		1,172.9
PROPERTY AND EQUIPMENT, AT COST	15,517.0			15,332.1			PROPERTY AND EQUIPMENT, AT COST	957.0		13,209.3
Less accumulated depreciation	2,900.8			2,458.4			Less accumulated depreciation	66.1		2,248.8
Property and equipment, net	12,616.2			12,873.7			Property and equipment, net	890.9		10,960.5
LONG-TERM NOTES RECEIVABLE FROM ARO							LONG-TERM NOTES RECEIVABLE FROM ARO	249.1		442.7
INVESTMENT IN ARO							INVESTMENT IN ARO	86.6		120.9
OTHER ASSETS	97.8			140.2			OTHER ASSETS	176.0		176.2
	$	14,023.7		$	14,625.9			$	2,609.2	$	12,873.2
LIABILITIES AND SHAREHOLDERS' EQUITY							LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES							CURRENT LIABILITIES
Accounts payable - trade	$	210.5		$	432.6		Accounts payable - trade	$	225.8	$	176.4
Accrued liabilities and other	318.0			325.9			Accrued liabilities and other	196.2		250.4

Total current liabilities	528.5			758.5			Total current liabilities	422.0		426.8
LONG-TERM DEBT	5,010.4			4,750.7			LONG-TERM DEBT	545.3		—
OTHER LIABILITIES	396.0			386.7			OTHER LIABILITIES	581.1		762.4
Total liabilities not subject to compromise							Total liabilities not subject to compromise	1,548.4		1,189.2
LIABILITIES SUBJECT TO COMPROMISE							LIABILITIES SUBJECT TO COMPROMISE	—		7,313.7
COMMITMENTS AND CONTINGENCIES							COMMITMENTS AND CONTINGENCIES	0		0
ENSCO SHAREHOLDERS' EQUITY
Class A ordinary shares, U.S. $.10 par value, 460.7 million and 447.0 million shares issued as of December 31, 2018 and 2017	46.1			44.7
Class B ordinary shares, £1 par value, 50,000 shares issued as of December 31, 2018 and 2017	.1			.1
VALARIS SHAREHOLDERS' EQUITY							VALARIS SHAREHOLDERS' EQUITY
Predecessor Class A ordinary shares, U.S. $0.40 par value, 206.1 million shares issued as of December 31, 2020							Predecessor Class A ordinary shares, U.S. $0.40 par value, 206.1 million shares issued as of December 31, 2020	—		82.5
Predecessor Class B ordinary shares, £1 par value, 50,000 shares issued as of December 31, 2020							Predecessor Class B ordinary shares, £1 par value, 50,000 shares issued as of December 31, 2020	—		0.1
Successor common shares, $0.01 par value, 700 million shares authorized, 75 million shares issued as of December 31, 2021							Successor common shares, $0.01 par value, 700 million shares authorized, 75 million shares issued as of December 31, 2021	0.8		—
Successor preference shares, $0.01 par value, 150 million shares authorized, 0 shares issued as of December 31, 2021							Successor preference shares, $0.01 par value, 150 million shares authorized, 0 shares issued as of December 31, 2021	—		—
Successor stock warrants							Successor stock warrants	16.4		—
Additional paid-in capital	7,225.0			7,195.0			Additional paid-in capital	1,083.0		8,639.9
Retained earnings	874.2			1,532.7
Accumulated other comprehensive income	18.2			28.6
Treasury shares, at cost, 23.6 million and 11.1 million shares as of December 31, 2018 and 2017	(72.2		)	(69.0		)
Total Ensco shareholders' equity	8,091.4			8,732.1
Retained deficit							Retained deficit	(33.0)		(4,183.8)
Accumulated other comprehensive loss							Accumulated other comprehensive loss	(9.1)		(87.9)
Predecessor Treasury shares, at cost, 6.6 million shares as of December 31, 2020							Predecessor Treasury shares, at cost, 6.6 million shares as of December 31, 2020	—		(76.2)
Total Valaris shareholders' equity							Total Valaris shareholders' equity	1,058.1		4,374.6
NONCONTROLLING INTERESTS	(2.6		)	(2.1		)	NONCONTROLLING INTERESTS	2.7		(4.3)
Total equity	8,088.8			8,730.0			Total equity	1,060.8		4,370.3
	$	14,023.7		$	14,625.9			$	2,609.2	$	12,873.2

The accompanying notes are an integral part of these consolidated financial statements.

ENSCO PLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
Year Ended December 31,
2018 2017 2016
OPERATING ACTIVITIES

Net income (loss) $ (636.6 ) $ (304.2 ) $ 897.1
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities of continuing operations:

Depreciation expense 478.9
444.8
445.3
Deferred income tax expense 56.6
55.0
28.7
Share-based compensation expense 41.6
41.2
39.6
Loss on impairment 40.3
182.9
—
Amortization, net (40.2 ) (61.6 ) (139.7 )
(Gain) loss on debt extinguishment 19.0
2.6
(287.8 )
Discontinued operations, net 8.1
(1.0 ) (8.1 )
Bargain purchase gain (1.8 ) (140.2 ) —
Other (3.6 ) (25.5 ) (38.3 )
Changes in operating assets and liabilities, net of acquisition (18.0 ) 65.4
140.6
Net cash provided by (used in) operating activities of continuing operations (55.7 ) 259.4
1,077.4
INVESTING ACTIVITIES

Maturities of short-term investments 1,030.0
2,042.5
2,212.0
Purchases of short-term investments (919.0 ) (1,040.0 ) (2,474.6 )
Additions to property and equipment (426.7 ) (536.7 ) (322.2 )
Net proceeds from disposition of assets 11.0
2.8
9.8
Acquisition of Atwood, net of cash acquired —
(871.6 ) —
Net cash used in investing activities of continuing operations (304.7 ) (403.0 ) (575.0 )
FINANCING ACTIVITIES

Proceeds from issuance of senior notes 1,000.0
—
849.5
Reduction of long-term borrowings (771.2 ) (537.0 ) (863.9 )
Cash dividends paid (17.9 ) (13.8 ) (11.6 )
Debt issuance costs (17.0 ) (12.0 ) (23.4 )
Proceeds from equity issuance —
—
585.5
Other (5.7 ) (7.7 ) (7.1 )
Net cash provided by (used in) financing activities 188.2
(570.5 ) 529.0
Net cash provided by (used in) discontinued operations 2.5
(.8 ) 8.4
Effect of exchange rate changes on cash and cash equivalents (.6 ) .6
(1.4 )
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (170.3 ) (714.3 ) 1,038.4
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 445.4
1,159.7
121.3
CASH AND CASH EQUIVALENTS, END OF YEAR $ 275.1
$ 445.4
$ 1,159.7

VALARIS LIMITED AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in millions)


	Successor		Predecessor
	Eight Months Ended December 31, 2021		Four Months Ended April 30, 2021		Year Ended December 31, 2020		Year Ended December 31, 2019
OPERATING ACTIVITIES
Net loss	$	(29.2)	$	(4,463.8)	$	(4,857.6)	$	(192.2)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation expense	66.1		159.6		540.8		609.7
Deferred income tax expense (benefit)	(21.3)		(18.2)		(105.7)		23.9
Gain on asset disposals	(21.2)		(6.0)		(11.8)		(1.8)
Accretion of discount on shareholders note	(20.8)		—		—		—
Net periodic pension and retiree medical income	(8.7)		(5.4)		(14.6)		(4.3)
Equity in losses (earnings) of ARO	(6.1)		(3.1)		7.8		12.6
Share-based compensation expense	4.3		4.8		21.4		37.3
Amortization, net	2.3		(4.8)		6.2		(16.8)
Debt discounts and other	0.5		—		36.8		31.5
Loss on Impairment	—		756.5		3,646.2		104.0
Adjustment to (gain on) bargain purchase	—		—		6.3		(637.0)
Gain on debt extinguishment	—		—		(3.1)		(194.1)
Debtor in possession financing fees and payments on Backstop Commitment Agreement	—		—		40.0		—
Non-cash reorganization items, net	—		3,487.3		436.4		—
Other	0.3		7.3		33.3		16.0
Changes in operating assets and liabilities, net of acquisition	10.3		68.5		(22.0)		(52.5)
Contributions to pension plans and other post-retirement benefits	(2.7)		(22.5)		(12.1)		(13.2)
Net cash used in operating activities	(26.2)		(39.8)		(251.7)		(276.9)
INVESTING ACTIVITIES
Additions to property and equipment	(50.2)		(8.7)		(93.8)		(227.0)

Net proceeds from disposition of assets	25.1		30.1		51.8		17.7
Rowan cash acquired	—		—		—		931.9
Maturities of short-term investments	—		—		—		474.0
Purchases of short-term investments	—		—		—		(145.0)

Net cash provided by (used in) investing activities	(25.1)		21.4		(42.0)		1,051.6
FINANCING ACTIVITIES
Issuance of first lien notes	—		520.0		—		—
Payments to Predecessor creditors	—		(129.9)		—		—
Borrowings on credit facility	—		—		596.0		215.0
Debtor in possession financing fees and payments on Backstop Commitment Agreement	—		—		(40.0)		—
Repayments of credit facility borrowings	—		—		(15.0)		(215.0)
Reduction of long-term borrowings	—		—		(9.7)		(928.1)
Purchase of noncontrolling interest	—		—		(7.2)		—
Debt solicitation fees	—		—		—		(9.5)
Cash dividends paid	—		—		—		(4.5)



Other	—		(1.4)		(1.9)		(10.2)
Net cash provided by (used in) financing activities	—		388.7		522.2		(952.3)

Effect of exchange rate changes on cash and cash equivalents	(0.1)		(0.1)		0.1		(0.3)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS AND RESTRICTED CASH	(51.4)		370.2		228.6		(177.9)
CASH AND CASH EQUIVALENTS AND RESTRICTED CASH, BEGINNING OF YEAR	696.0		325.8		97.2		275.1
CASH AND CASH EQUIVALENTS AND RESTRICTED CASH, END OF YEAR	$	644.6	$	696.0	$	325.8	$	97.2

The accompanying notes are an integral part of these consolidated financial statements.

~~ENSCO PLC~~VALARIS LIMITED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. DESCRIPTION OF THE BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Business

We are ~~one of the~~a leading ~~providers~~provider of offshore contract drilling services to the international oil and gas industry. We currently own ~~and operate~~ an offshore drilling rig fleet of 56 rigs, ~~spanning most of the strategic markets around the globe. We also have three rigs under construction. Inclusive of our rigs under construction, our~~with drilling operations in almost every major offshore market across 6 continents. Our rig fleet includes 1211 drillships, 94 dynamically positioned semisubmersible rigs, ~~three~~1 moored semisubmersible rig, 40 jackup rigs and ~~35 jackup~~a 50% equity interest in Saudi Aramco Rowan Offshore Drilling Company ("ARO"), our 50/50 joint venture with Saudi Aramco, which owns an additional 7 rigs. We operate the world's largest fleet amongst competitive rigs, including one of the newest ultra-deepwater fleets in the industry and a leading premium jackup fleet.

Our customers include many of the leading national and international oil companies, in addition to many independent operators. We are among the most geographically diverse offshore drilling companies, with current operations spanning 14 ~~countries on~~ ~~six~~ ~~continents.~~ countries. The markets in which we operate include the Gulf of Mexico, ~~Brazil, the Mediterranean, the~~South America, North Sea, the Middle East, ~~West~~ Africa, Australia and Southeast Asia.

We provide drilling services on a day rate contract basis. Under day rate contracts, we provide an integrated service that includes the provision of a drilling rig and rig crews for which we receive a daily rate that may vary between the full rate and zero rate throughout the duration of the contractual term, depending on the operations of the rig. We also may receive lump-sum fees or similar compensation for the mobilization, demobilization and capital upgrades of our rigs. Our customers bear substantially all of the costs of constructing the well and supporting drilling operations, as well as the economic risk relative to the success of the well.

~~Proposed Rowan Transaction~~Chapter 11 Cases

On ~~October 7, 2018, Ensco~~August 19, 2020 (the “Petition Date”), Valaris plc (“Legacy Valaris” or “Predecessor”) and ~~Rowan Companies plc~~certain of its direct and indirect subsidiaries (collectively, the “Debtors”) filed voluntary petitions for reorganization under chapter 11 of the United States Bankruptcy Code ("~~Rowan"~~Bankruptcy Code") ~~entered into an agreement that provides~~in the Bankruptcy Court for the ~~combination~~Southern District of Texas (the "Bankruptcy Court") The Debtors obtained joint administration of their chapter 11 cases under the ~~two companies (as amended the "Transaction Agreement"~~caption In re Valaris plc, et al., Case No. 20-34114 (MI) (the “Chapter 11 Cases”). Ensco has agreed to acquire the entire issued and to be issued share capital of Rowan in an all-stock transaction (the " Rowan Transaction") by way of a scheme of arrangement to be undertaken by Rowan under Part 26 of the UK Companies Act 2006. On January 29, 2019, the Transaction Agreement was amended to increase the exchange ratio in

In connection with the ~~Rowan Transaction from 2.215~~Chapter 11 Cases, on and prior to ~~2.750.~~April 30, 2021 (the "Effective Date"), Legacy Valaris effectuated certain restructuring transactions, pursuant to which the successor company, Valaris, was formed and, through a series of transactions, Legacy Valaris transferred to a subsidiary of Valaris substantially all of the subsidiaries, and other assets, of Legacy Valaris.

~~Subject~~References to the ~~terms~~financial position and ~~conditions~~results of operations of the ~~Transaction Agreement, each Class A ordinary share~~"Successor" or "Successor Company" relate to the financial position and results of ~~Rowan will be converted into~~operations of the ~~right~~Company after the Effective Date. References to ~~receive 2.750 Class A ordinary shares~~the financial position and results of ~~Ensco plc. We estimate~~operations of the ~~total consideration~~"Predecessor" or "Predecessor Company" refer to ~~be delivered~~the financial position and results of operations of Legacy Valaris on and prior to the Effective Date. References to the “Company,” “we,” “us” or “our” in this Annual Report are to Valaris Limited, together with its consolidated subsidiaries, when referring to periods following the ~~Rowan Transaction~~Effective Date, and to ~~be approximately $1.5 billion, consisting~~Legacy Valaris, together with its consolidated subsidiaries, when referring to periods prior to and including Effective Date.

See“Note 2 – Chapter 11 Proceedings” for additional details regarding the Chapter 11 Cases.

Fresh Start Accounting

On the Effective Date, the Debtors emerged from the Chapter 11 Cases. Upon emergence from the Chapter 11 Cases, we qualified for and adopted fresh start accounting. The application of ~~approximately 351.3 million~~fresh start accounting resulted in a new basis of accounting, and the Company became a new entity for financial reporting purposes. Accordingly, our financial statements and notes after the Effective Date are not comparable to our financial statements and notes on and prior to that date. Furthermore, the consolidated financial statements and notes have been presented with a black line division to delineate the lack of comparability between the Predecessor and Successor.

See “Note 2 – Chapter 11 Proceedings” and “Note 3 - Fresh Start Accounting” for additional details regarding the Chapter 11 Cases and fresh start accounting.

Changes in Accounting Policies

Upon emergence from bankruptcy, we elected to change our accounting policies related to property and equipment as well as materials and supplies.

Prior to emergence from bankruptcy, we recorded our drilling rigs as a single asset with a useful life ascribed by the expected useful life of that asset. Upon emergence, we have identified the significant components of our ~~shares~~drilling rigs and ascribed useful lives based on the ~~closing price of $4.41 on February 22, 2019. The value~~expected time until the next required overhaul or the end of the ~~Rowan Transaction consideration~~expected economic lives of the components.

Historically, we recognized materials and supplies on the balance sheet when purchased and subsequently expensed items when consumed. Following emergence, materials and supplies will ~~fluctuate until~~be expensed as a period cost when received. Additionally, a customer arrangement provides that we take title to their materials and supplies for the ~~closing date based~~duration of the contract and return or pay cash for them at the termination of the contract. Together with our policy change on ~~changes in the price of our shares~~materials and supplies, we elected to record these assets and the ~~number of Rowan ordinary shares outstanding.~~obligation to our customer on a net basis as opposed to a gross basis.

The completion of the Rowan Transaction is subject to various closing conditions, including, among others, (i) the sanction of the Rowan Transaction by the High Court of Justice of England and Wales, (ii) the receipt of certain required regulatory approvals or lapse of certain review periods with respect thereto, including in the Kingdom of Saudi Arabia, (iii) the absence of legal restraints prohibiting or restraining the Rowan Transaction and (iv) the absence of any law or order reasonably expected to result in the dissolution of the Saudi Aramco Offshore Drilling Company, Rowan’s joint venture with Saudi Aramco (the “ARO JV”), or the sale, disposition, forfeiture or nationalization of Rowan’s interest in the ARO JV. Shareholders of Rowan and Ensco approved the Rowan Transaction on February 21, 2019. The Rowan Transaction is expected to close during the first half of 2019, subject to satisfaction of all conditions to closing. Upon closing of the Rowan Transaction, we intend to complete a reverse split of our ordinary shares under which every four existing Ensco ordinary shares will be consolidated into one Ensco ordinary share.Accounting Policies

~~Atwood Merger~~

On October 6, 2017 (the "Merger Date"), we completed a merger transaction (the "Atwood Merger") with Atwood Oceanics, Inc. ("Atwood") and Echo Merger Sub, LLC, a wholly-owned subsidiary of Ensco plc. Pursuant to the merger agreement, Echo Merger Sub, LLC, merged with and into Atwood, with Atwood as the surviving entity and an indirect, wholly-owned subsidiary of Ensco plc. Total consideration delivered in the Atwood Merger consisted of 132.2 million of our Class A ordinary shares and $11.1 millionof cash in settlement of certain share-based payment awards. The total aggregate value of consideration transferred was $781.8 million. Additionally, upon closing of the Atwood Merger, we utilized cash acquired of $445.4 million and cash on hand to extinguish Atwood's revolving credit facility, outstanding senior notes and accrued interest totaling $1.3 billion. The estimated fair values assigned to assets acquired net of liabilities assumed exceeded the consideration transferred, resulting in a bargain purchase gain of $140.2 million that was recognized during the fourth quarter of 2017. During 2018, we recognized measurement period adjustments as we completed our fair value assessments resulting in additional bargain purchase gain of $1.8 million.

~~Basis of Presentation—U.K. Companies Act 2006 Section 435 Statement~~

The accompanying consolidated financial statements have been prepared in accordance with U.S. GAAP, which the Board of Directors consider to be the most meaningful presentation of our results of operations and financial position. The accompanying consolidated financial statements do not constitute U.K. statutory accounts for the year ended December 31, 2018 and 2017 as required to be prepared under the U.K. Companies Act 2006. The U.K. statutory accounts are prepared in accordance with Financial Reporting Standard 102, the financial reporting standard applicable in the U.K. and Republic of Ireland (“FRS 102”). The auditor has reported on the U.K. statutory accounts for the year ended December 31, 2017; their report was (i) unqualified, (ii) did not include a reference to any matters to which the auditor drew attention by way of emphasis without qualifying their report and (iii) did not contain a statement under section 498 (2) or (3) of the U.K. Companies Act 2006. The U.K. statutory accounts for the year ended December 31, 2018 have yet to be finalized and will be delivered to the U.K. registrar of companies during 2019.

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of ~~Ensco plc,~~Valaris Limited, those of our wholly-owned subsidiaries and entities in which we hold a controlling financial interest. All intercompany accounts and transactions have been eliminated. Investments in operating entities in which we have the ability to exercise significant influence, but where we do not control operating and financial policies are accounted for using the equity method. Significant influence generally exists if we have an ownership interest representing between 20% and 50% of the voting stock of the investee. We account for our interest in ARO using the equity method of accounting and only recognize our portion of equity in earnings in our consolidated financial statements. ARO is a variable interest entity; however, we are not the primary beneficiary and therefore do not consolidate ARO.

Reclassification

Certain previously reported amounts have been reclassified to conform to the current year presentation.

Pervasiveness of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires us to make certain estimates, judgments and assumptions that affect the reported amounts of assets and liabilities, the related revenues and expenses and disclosures of gain and loss contingencies as of the date of the financial statements. Actual results could differ from those estimates.

Foreign Currency Remeasurement and Translation

Our functional currency is the U.S. dollar. As is customary in the oil and gas industry, a majority of our revenues and expenses are denominated in U.S. dollars; however, a portion of the revenues earned and expenses incurred by certain of our subsidiaries are denominated in currencies other than the U.S. dollar. These transactions are remeasured in U.S. dollars based on a combination of both current and historical exchange rates. Most transaction gains and losses, including certain gains and losses on our prior derivative instruments, are included in ~~other,~~Other, net, in our ~~consolidated statement~~Consolidated Statements of ~~operations.~~Operations. Certain gains and losses from the translation of foreign currency balances of our non-U.S. dollar functional currency subsidiaries are included in ~~accumulated~~Accumulated other comprehensive income on our ~~consolidated balance sheet.~~Consolidated Balance Sheet. Net foreign currency exchange gains were $8.1 million and $13.4 million, and were included in Other, net, in our Consolidated Statements of Operations for the eight months ended December 31, 2021 (Successor) and four months ended April 30, 2021 (Predecessor), respectively. Net foreign currency exchange losses, inclusive of offsetting fair value derivatives were

~~$17.2 million, $5.1~~ $11.0 million and ~~$6.0~~$7.4 million, and were included in ~~other,~~Other, net, in our ~~consolidated statements~~Consolidated Statements of ~~operations~~Operations for the ~~years~~year ended December 31, ~~2018, 2017~~2020 (Predecessor) and ~~2016~~2019 (Predecessor), respectively.

Cash Equivalents and Short-Term Investments

Highly liquid investments with maturities of three months or less at the date of purchase are considered cash equivalents. Highly liquid investments with maturities of greater than three months but less than one year at the date of purchase are classified as short-term investments.

~~Short-term~~There were no short-term investments ~~consisted of time deposits with initial maturities in excess of three months but less than one year and totaled $329.0 million and $440.0 million~~ as of December 31, ~~2018~~2021 (Successor) and ~~2017, respectively.~~2020 (Predecessor). Cash flows from purchases and maturities of short-term investments were classified as investing activities in our ~~consolidated statements~~Consolidated Statements of ~~cash flows~~Cash Flows for the ~~years~~year ended December 31, ~~2018, 2017 and 2016~~.2019. To mitigate our credit risk, our investments in time deposits ~~are~~have historically been diversified across multiple, high-quality financial institutions.

Property and Equipment

All costs incurred in connection with the acquisition, construction, major enhancement and improvement of assets are capitalized, including allocations of interest incurred during periods that our drilling rigs are under construction or undergoing major enhancements and improvements. Costs incurred to place an asset into service are capitalized, including costs related to the initial mobilization of a newbuild drilling rig. Repair and maintenance costs are charged to contract drilling expense in the period in which they are incurred. Upon the sale or retirement of assets, the related cost and accumulated depreciation are removed from the balance sheet, and the resulting gain or loss is included in ~~contract drilling expense, unless reclassified to discontinued operations.~~Other, net in our Consolidated Statements of Operations.

See "Changes in Accounting Policies" above for a discussion of the change in our accounting policy for property and equipment upon emergence from bankruptcy. Our property and equipment is depreciated on a straight-line basis, after allowing for salvage values, over the estimated useful lives of our assets. Drilling rigs and related equipment are depreciated over estimated useful lives ranging from ~~four~~five to 35 years. Buildings and improvements are depreciated over estimated useful lives ranging from ~~seven~~10 to 30 years. Other equipment, including computer and communications hardware and software, ~~costs,~~ is depreciated over estimated useful lives ranging from ~~three~~two to six years.

We evaluate the carrying value of our property and equipment, ~~for impairment when~~primarily our drilling rigs, on a quarterly basis to identify events or changes in circumstances ("triggering events") that indicate that the carrying value of such ~~assets~~rigs may not be recoverable. For property and equipment used in our operations, recoverability generally is determined by comparing the carrying value of an asset to the expected undiscounted future cash flows of the asset. If the carrying value of an asset is not recoverable, the amount of impairment loss is measured as the difference between the carrying value of the asset and its estimated fair value. Property and equipment held-for-sale is recorded at the lower of net book value or fair value less cost to sell.

We recorded pre-tax, non-cash impairment losses related to long-lived assets of ~~$40.3~~$756.5 million, $3.6 billion and ~~$182.9~~$104.0 million, ~~during 2018~~in the four months ended April 30, 2021 (Predecessor), the year ended December 31, 2020 (Predecessor) and ~~2017,~~the year ended December 31, 2019 (Predecessor), respectively. See ~~"Note 5~~"Note 8 - Property and Equipment" for additional information on our impairment charges.

If the global economy deteriorates and/or our expectations relative to future offshore drilling industry conditions decline, it is reasonably possible that additional impairment charges may occur with respect to specific individual rigs, groups of rigs, such as a specific type of drilling rig, or rigs in a certain geographic location.

Operating Revenues and Expenses

See ~~"Note 2~~"Note 4 - Revenue from Contracts with Customers" for information on our accounting policies for revenue recognition and certain operating costs that are deferred and amortized over future ~~periods, which reflects our revenue recognition policies subsequent to our adoption of ASC Topic 606,~~ ~~Revenue from Contracts with Customers~~, effective January 1, 2018. Prior to our adoption of ASC Topic 606, we recognized revenue in accordance with prior guidance under ASC Topic 605. With the exception of a change in our policy to recognize demobilization revenue over the related contract term, if certain conditions are met, our revenue recognition policies are substantively unchanged as a result of our adoption of ASC Topic 606.periods.

Derivative Instruments

We ~~use~~did not have any open derivative instruments as of December 31, 2021 (Successor) or 2020 (Predecessor). However, we have historically used derivatives to reduce our exposure to various market risks, primarily foreign currency exchange rate risk. See ~~"Note 7~~"Note 10 - Derivative Instruments" for additional information on how and why we ~~use derivatives.~~used derivatives and the impact of the Chapter 11 Cases.

~~All derivatives~~Derivatives are recorded on our ~~consolidated balance sheet~~Consolidated Balance Sheet at fair value. Derivatives subject to legally enforceable master netting agreements are not offset on our ~~consolidated balance sheet.~~Consolidated Balance Sheet. Accounting for the gains and losses resulting from changes in the fair value of derivatives depends on the use of the derivative and whether it qualifies for hedge accounting. Derivatives qualify for hedge accounting when they are formally designated as hedges and are effective in reducing the risk exposure that they are designated to hedge.

Changes in the fair value of derivatives that are designated as hedges of the variability in expected future cash flows associated with existing recognized assets or liabilities or forecasted transactions ("cash flow hedges") are recorded in accumulated other comprehensive income ("AOCI"). Amounts recorded in AOCI associated with cash flow hedges are subsequently reclassified into contract drilling, depreciation or interest expense as earnings are affected by the underlying hedged forecasted transactions.

Gains and losses on a cash flow hedge, or a portion of a cash flow hedge, that no longer qualifies as effective due to an unanticipated change in the forecasted transaction are recognized currently in earnings and included in ~~other,~~Other, net, in our ~~consolidated statement~~Consolidated Statements of ~~operations~~Operations based on the change in the fair value of the derivative. When a forecasted transaction becomes probable of not occurring, gains and losses on the derivative previously recorded in AOCI are reclassified currently into earnings and included in ~~other,~~Other, net, in our ~~consolidated statement~~Consolidated Statements of ~~operations.~~Operations.

~~We occasionally~~Historically, we would enter into derivatives that hedge the fair value of recognized assets or liabilities but do not designate such derivatives as hedges or the derivatives otherwise do not qualify for hedge accounting. In these situations, a natural hedging relationship generally exists where changes in the fair value of the derivatives offset changes in the fair value of the underlying hedged items. Changes in the fair value of these derivatives are recognized currently in earnings in other, net, in our ~~consolidated statement~~Consolidated Statements of ~~operations.~~Operations.

Derivatives with asset fair values are reported in other current assets or other assets, net, on our ~~consolidated balance sheet~~Consolidated Balance Sheet depending on maturity date. Derivatives with liability fair values are reported in accrued liabilities and other, or other liabilities on our ~~consolidated balance sheet~~Consolidated Balance Sheet depending on maturity date.

Income Taxes

We conduct operations and earn income in numerous countries. Current income taxes are recognized for the amount of taxes payable or refundable based on the laws and income tax rates in the taxing jurisdictions in which operations are conducted and income is earned.

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Deferred tax assets and liabilities are recognized for the anticipated future tax effects of temporary differences between the financial statement basis and the tax basis of our assets and liabilities using the enacted tax rates in effect at year-end. A valuation allowance for deferred tax assets is recorded when it is more-likely-than-not that the benefit from the deferred tax asset will not be realized. We do not offset deferred tax assets and deferred tax liabilities attributable to different tax paying jurisdictions.

We operate in certain jurisdictions where tax laws relating to the offshore drilling industry are not well developed and change frequently. Furthermore, we may enter into transactions with affiliates or employ other tax planning strategies that generally are subject to complex tax regulations. As a result of the foregoing, the tax liabilities and assets we recognize in our financial statements may differ from the tax positions taken, or expected to be taken, in our tax returns. Our tax positions are evaluated for recognition using a more-likely-than-not threshold, and those tax positions requiring recognition are measured as the largest amount of tax benefit that is greater than 50% likely of being realized upon effective settlement with a taxing authority that has full knowledge of all relevant information. Interest and penalties relating to income taxes are included in ~~current~~Current income tax expense in our ~~consolidated statement~~Consolidated Statements of ~~operations.~~Operations.

Our drilling rigs frequently move from one taxing jurisdiction to another based on where they are contracted to perform drilling services. The movement of drilling rigs among taxing jurisdictions may involve a transfer of drilling rig ownership among our subsidiaries through an intercompany rig sale. The pre-tax profit resulting from an intercompany rig sale is eliminated from our consolidated financial statements, and the carrying value of a rig sold in an intercompany transaction remains at historical net depreciated cost prior to the transaction. Our consolidated financial statements do not reflect the asset disposition transaction of the selling subsidiary or the asset acquisition transaction of the acquiring subsidiary. Prior to our adoption of Accounting Standards Update 2016-16, Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory (“Update 2016-16”) on January 1, 2017, income taxes resulting from an intercompany rig sale, as well as the tax effect of any reversing temporary differences resulting from the sale, were deferred and amortized on a straight-line basis over the remaining useful life of the rig. Subsequent to our adoption of Update 2016-16, theThe income tax effects resulting from intercompany rig sales are recognized in earnings in the period in which the sale occurs.

In some instances, we may determine that certain temporary differences will not result in a taxable or deductible amount in future years, as it is more-likely-than-not we will commence operations and depart from a given taxing jurisdiction without such temporary differences being recovered or settled. Under these circumstances, no future tax consequences are expected and no deferred taxes are recognized in connection with such operations. We evaluate these determinations on a periodic basis and, in the event our expectations relative to future tax consequences change, the applicable deferred taxes are recognized or derecognized.

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The U.S. Tax Cuts and Jobs Act (“U.S. tax reform”) was enacted on December 22, 2017 and introduced significant changes to U.S. income tax law, including a reduction in the statutory income tax rate from 35% to 21% effective January 1, 2018, a one-time transition tax on deemed repatriation of deferred foreign income, a base erosion anti-abuse tax that effectively imposes a minimum tax on certain payments to non-U.S. affiliates, new and revised rules relating to the current taxation of certain income of foreign subsidiaries and revised rules associated with limitations on the deduction of interest. See "Note 10 - Income Taxes" for additional information.

Share-Based Compensation

We sponsor share-based compensation plans that provide equity compensation to our key employees, officers and non-employee directors. Our ~~Long-Term~~Management Incentive Plan (the ~~“2018 LTIP”~~“MIP”) allows our Board of Directors to authorize share grants to be settled in cash, shares or ~~shares.~~a combination of shares and cash. Compensation expense for time-based share awards to be settled in shares is measured at fair value on the date of grant and recognized on a straight-line basis over the requisite service period (usually the vesting period). Compensation expense for performance awards is recognized over the requisite service period using the accelerated method and is reduced for forfeited awards in the period in which the forfeitures occur. For our performance awards that cliff vest and require the employee to render service through the vesting date, even though attainment of performance objectives might be earlier, our expense under the accelerated method would be a ratable expense over the vesting period. Equity settled performance awards generally vest at the end of a three-year measurement period based on attainment of performance goals. The estimated probable outcome of attainment of the specified performance goals is based primarily on relative performance over the requisite performance period. Any subsequent changes in this estimate as it relates to performance objectives are recognized as a cumulative adjustment to compensation cost in the period in which the change in estimate occurs, except in the case of objectives based on a market condition, such as our stock price. Compensation cost for awards based on a market performance objective is recognized as long as the requisite service period is completed and will not be reversed even if the market-based objective is never satisfied. Compensation expense for share awards to be settled in cash isare recognized as liabilities and remeasured each quarter with a cumulative adjustment to compensation cost during the period based on changes in our share price. Any adjustments to the compensation cost recognized in our ~~consolidated statement~~Consolidated Statements of ~~operations~~Operations for awards that are forfeited are recognized in the period in which the forfeitures occur. See ~~"Note 9~~"Note 1 2 - ~~Benefit Plans"~~Share Based Compensation" for additional information on our share-based compensation.

Pension and Other Post-retirement benefit plans

We measure our actuarially determined obligations and related costs for our defined benefit pension and other post-retirement plans, retiree life and medical supplemental plan benefits by applying assumptions, the most significant of which include long-term rate of return on plan assets, discount rates and mortality rates. For the long-term rate of return, we develop our assumptions regarding the expected rate of return on plan assets based on historical experience and projected long-term investment returns, and we weight the assumptions based on each plan's asset allocation. For the discount rate, we base our assumptions on a yield curve approach. Actual results may differ from the assumptions included in these calculations. If gains or losses exceed 10% of the greater of the plan assets or plan liabilities, we amortize such gains or losses into income over either the period of expected future service of active participants, or over the expected average remaining lifetime of all participants. We recognize gains or losses related to plan curtailments at the date the plan amendment or termination is adopted which may precede the effective date.

Fair Value Measurements

We measure certain of our assets and liabilities based on a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy assigns the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities ("Level 1") and the lowest priority to unobservable inputs ("Level 3"). Level 2 measurements represent inputs that are observable for similar assets or liabilities, either directly or indirectly, other than quoted prices included within Level 1. See ~~"Note 4~~"Note 7 - Fair Value Measurements" for additional information on the fair value measurement of certain of our assets and liabilities.

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Noncontrolling Interests

~~Third parties~~Third-parties hold a noncontrolling ownership interest in certain of our non-U.S. subsidiaries. Noncontrolling interests are classified as equity on our ~~consolidated balance sheet~~Consolidated Balance Sheet, and net income attributable to noncontrolling interests is presented separately in our ~~consolidated statement~~Consolidated Statements of ~~operations.~~Operations. For ~~each of~~ the ~~years in the three-year period~~eight months ended December 31, ~~2018,~~2021 (Successor), the four months ended April 30, 2021 (Predecessor), the year ended December 31, 2020 (Predecessor) and the year ended December 31, 2019 (Predecessor), all income attributable to noncontrolling interest was from continuing operations.

Earnings Per Share

~~We compute basic~~Basic income (loss) per share is computed by dividing net income (loss) available to common shareholders by the weighted-average number of common shares outstanding during the period. Basic and diluted earnings per share ("EPS") for the Predecessor was calculated in accordance with the two-class method. ~~Net income (loss)~~Predecessor net loss attributable to ~~Ensco~~Legacy Valaris used in our computations of basic and diluted EPS iswas adjusted to exclude net income allocated to non-vested shares granted to our employees and non-employee directors. Weighted-average shares outstanding used in our computation of diluted EPS is calculated using the treasury stock method and for the Successor includes the effect of all potentially dilutive warrants, restricted stock unit awards and performance stock unit awards and for the Predecessor includes the effect of all potentially dilutive stock options and excludes non-vested shares. In ~~each of~~ the ~~years in the three-year period~~eight months ended December 31, ~~2018,~~2021 (Successor), the four months ended April 30, 2021 (Predecessor), the year ended December 31, 2020 (Predecessor) and the year ended December 31, 2019 (Predecessor), our potentially dilutive instruments were not included in the computation of diluted EPS as the effect of including these shares in the calculation would have been anti-dilutive.

The following table is a reconciliation of ~~income (loss)~~loss from continuing operations attributable to ~~Ensco~~our shares, or Legacy Valaris shares in the case of the Predecessor periods, used in our basic and diluted EPS computations ~~for each~~(in millions).


	Successor		Predecessor
	Eight Months Ended December 31, 2021		Four Months Ended April 30, 2021		Year Ended December 31, 2020		Year Ended December 31, 2019
Loss from continuing operations attributable to Valaris	$	(33.0)	$	(4,467.0)	$	(4,855.5)	$	(198.0)
Income from continuing operations allocated to non-vested share awards (1)	—		—		—		(0.1)
Loss from continuing operations attributable to Valaris shares	$	(33.0)	$	(4,467.0)	$	(4,855.5)	$	(198.1)

(1) Losses are not allocated to non-vested share awards. Due to the net loss position, potentially dilutive share awards are excluded from the computation of ~~the years in the three-year period ended December 31, 2018 (in millions):~~diluted EPS.

2018 2017 2016
Income (loss) from continuing operations attributable to Ensco $ (631.6 ) $ (304.7 ) $ 882.1
Income from continuing operations allocated to non-vested share awards (.5 ) (.4 ) (16.6 )
Income (loss) from continuing operations attributable to Ensco shares $ (632.1 ) $ (305.1 ) $ 865.5

Anti-dilutive share awards totaling ~~1.5 million, 2.0 million~~600,000, 300,000, 400,000 and ~~500,000~~300,000 for the ~~years~~eight months ended December 31, ~~2018, 2017~~2021 (Successor), the four months ended April 30, 2021 (Predecessor), the year ended December 31, 2020 (Predecessor) and ~~2016,~~the year ended December 31, 2019 (Predecessor), respectively, were excluded from the computation of diluted EPS.

~~During 2016,~~

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The Predecessor previously had the 2024 Convertible Notes (as defined and more fully described in Note 9 "Debt") for which we ~~issued our 3.00% exchangeable senior notes due 2024 (the "2024 Convertible Notes"). See "Note 6 - Debt" for additional information on this issuance. We have~~had the option to settle ~~the notes~~ in cash, shares or a combination thereof for the aggregate amount due upon conversion. ~~Our intent is~~On the Effective Date, pursuant to ~~settle~~ the ~~principal amount~~plan of reorganization, all outstanding obligations under the 2024 Convertible Notes, were cancelled and the holders thereunder received the treatment as set forth in ~~cash upon conversion. If~~ the ~~conversion value exceeds~~plan of reorganization. However, if the ~~principal amount (i.e., our~~Legacy Valaris average share price ~~exceeds~~had exceeded the exchange price ~~on the date of conversion), we expect to deliver shares equal to the remainder of our conversion obligation in excess of the principal amount.~~

~~During each~~during a respective predecessor 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~~would have been included in our denominator for the computation of diluted EPS using the treasury stock method. ~~Our~~The Legacy Valaris average share price did not exceed the exchange price during the four months ended April 30, 2021 (Predecessor) or the years ended December 31, ~~2018~~2020 (Predecessor) or 2019 (Predecessor).

Cancellation of Predecessor Equity and ~~December 31, 2017.~~Issuance of Warrants

On the Effective Date and pursuant to the plan of reorganization, the Legacy Valaris Class A ordinary shares were cancelled. In accordance with the plan of reorganization, all agreements, instruments and other documents evidencing, relating or otherwise connected with any of Legacy Valaris' equity interests outstanding prior to the Effective Date, including all equity-based awards, were cancelled. On the Effective Date and pursuant to the plan of reorganization, the Company issued 5,645,161 Warrants to the former holders of the Company's equity interests outstanding prior to the Effective Date. The Warrants are exercisable for one Common Share per Warrant at an initial exercise price of $131.88 per Warrant, in each case as may be adjusted from time to time pursuant to the applicable warrant agreement. The Warrants are exercisable for a period of seven years and will expire on April 29, 2028. The exercise of these Warrants into Common Shares would have a dilutive effect to the holdings of Valaris Limited's existing shareholders.

New Accounting Pronouncements

Recently adopted accounting ~~standards~~pronouncements

Income Taxes -In ~~August 2018,~~December 2019, the ~~Financial Accounting Standards Board (the "FASB")~~FASB issued ~~Update 2018-15, Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40)~~ASU 2019-12, Income Taxes (Topic 740): ~~Customer’s~~Simplifying the Accounting for ~~Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract~~Income Taxes ("Update ~~2018-15"~~2019-12"), which ~~aligns~~removes certain exceptions for investments, intraperiod allocations and interim tax calculations and adds guidance to reduce complexity in accounting for income taxes. We were required to adopt the ~~requirements~~amended guidance in annual and interim periods beginning after December 15, 2020. The various amendments in Update 2019-12 are applied on a retrospective basis, modified retrospective basis and prospective basis, depending on the amendment. We adopted Update 2019-12 effective January 1, 2021 with no material impact to our financial statements upon adoption.

Accounting pronouncements to be adopted

Reference Rate Reform - In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting ("Update 2020-04"), which provides optional expedients and exceptions for ~~capitalizing implementation costs incurred~~applying GAAP to contracts, hedging relationships and other transactions affected by reference rate reform if certain criteria are met. The amendments in Update 2020-04 apply only to contracts, hedging relationships and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. The expedients and exceptions provided by the amendments do not apply to contract modifications made and hedging relationships entered into or evaluated after December 31, 2022, except for hedging relationships existing as of December 31, 2022, for which an entity has elected certain optional expedients and that are retained through the end of the hedging relationship. The provisions in Update 2020-04 are effective upon issuance and can be applied prospectively through December 31, 2022. Our notes receivable with ARO, from which we generate interest income on a ~~hosting arrangement~~LIBOR-based rate, are impacted by the application of this standard. As the notes bear interest on the LIBOR rate determined at the end of the preceding year, the rate governing our interest income in 2022 has already been determined. We expect to be able to modify the terms of our notes receivable to a comparable interest rate before the applicable LIBOR rate is no longer available and as such, do not expect this standard to have a material impact to our consolidated financial statements.

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Leases - In July 2021, the FASB issued ASU 2021-05, “Leases (Topic 842); Lessors - Certain Leases with Variable Lease Payments”, (“Update 2021-05”) which requires a lessor to classify a lease with entirely or partially variable payments that isdo not depend on an index or rate as an operating lease if another classification (i.e. sales-type or direct financing) would trigger a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that included an internal-use software license). This updateday-one loss. Update 2021-05 is effective for fiscal years beginning after December 15, ~~2020~~2021, with early adoption permitted. We are in the process of evaluating the impact this amendment will have on our consolidated financial statements.

Business Combinations - In October 2021, the FASB issued ASU 2021-08, “Accounting for Contracts Assets and Contract Liabilities from Contracts with Customers” (“Update 2021-08”). ASU 2021-08 requires an entity (acquirer) to recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with Topic 606 and provides practical expedients for acquirers when recognizing and measuring acquired contract assets and contract liabilities from revenue contracts in a business combination. The amendments also apply to contract assets and contract liabilities from other contracts to which the provisions of Topic 606 apply, such as contract liabilities for the sale of nonfinancial assets within the scope of Subtopic 610-20, Other Income - Gains and Losses from the Derecognition of Nonfinancial Assets. The FASB issued the update to improve the accounting for acquired revenue contracts with customers in a business combination. The ASU’s amendments are effective for fiscal years beginning after December 15, 2022, and interim periods within those fiscal years, with early adoption permitted. We ~~elected to early-adopt~~will adopt Update 2018-15 effective October 1, 2018. As a result of adopting Update 2018-15, we began deferring and amortizing certain costs incurred to implement cloud computing arrangements that would have been recognized as incurred under previous guidance. We do not expect our adoption of Update 2018-15 to have a material impact on our financial position or results of operations in future periods.

In February 2018, the FASB issued Update 2018-02, Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects From Accumulated Other Comprehensive Income ("Update 2018-02"), which allows for a reclassification from accumulated other comprehensive income (AOCI) to retained earnings for stranded tax effects resulting from U.S. tax reform. This update is effective for fiscal years beginning after December 15, 2018 and interim periods within those fiscal years, with early adoption permitted. We adopted Update 2018-02 effective January 1, 2018. As a result, we reclassified a total of $800,000 in tax effects from AOCI to opening retained earnings.

~~In October 2016, the FASB issued Accounting Standards Update 2016-16,~~ ~~Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory~~ (“Update 2016-16”), which requires entities to recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transaction occurs as opposed to deferring tax consequences and amortizing them into future periods. We adopted Update 2016-16 on a modified retrospective basis effective January 1, 2017. As a result of modified retrospective application, we reduced prepaid taxes on intercompany transfers of property and related deferred tax liabilities resulting2021-08 in the ~~recognition of a cumulative-effect reduction in retained earnings of $14.1 million on our consolidated balance sheet as of January 1, 2017.~~

~~During 2014, the FASB issued Update 2014-09, Revenue from Contracts with Customers (Topic 606) ("Update 2014-09"), which requires entities~~period required and will apply it to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. Update 2014-09 is effective for annual and interim periods for fiscal years beginning after December 15, 2017. We adopted Update 2014-09 effective January 1, 2018, using the modified retrospective approach. Only customer contracts that were notany business combination completed as of the effective adoption date were evaluated under the transition guidance to determine if a cumulative catch-up adjustment to retained earnings was warranted. Revenues recognized in prior years for customer contracts that expired priorsubsequent to the effective adoption date continue to be reported under the previous revenue recognition guidance. Our adoption of Update 2014-09 did not result in a cumulative effect on retained earnings and no adjustments were made to prior periods. While Update 2014-09 requires additional disclosure regarding revenues recognized from customer contracts, our adoption did not have a material impact on the recognition of current or prior period revenues as compared to previous guidance nor do we expect a material impact to our pattern of revenue recognition in future periods. See "Note 2 - Revenue from Contracts with Customers" for additional information.adoption.

~~Recently issued accounting standards~~

In August 2017, the FASB issued Update 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities ("Update 2017-12"), which will make more hedging strategies eligible for hedge accounting. It also amends presentation and disclosure requirements and changes how companies assess effectiveness. This update is effective for annual and interim periods beginning after December 15, 2018, with

early adoption permitted. We are currently evaluating the effect that Update 2017-12 will have on our consolidated financial statements and related disclosures. However, we do not expect our adoption of Update 2017-12 to have a material impact on our financial position or results of operations.

During 2016, the FASB issued Update 2016-02, Leases (Topic 842) ("Update 2016-02"), which requires an entity to recognize lease assets and lease liabilities on the balance sheet and to disclose key qualitative and quantitative information about the entity's leasing arrangements. This update is effective for annual and interim periods beginning after December 15, 2018, with early adoption permitted. During our evaluation of Update 2016-02, we concluded that our drilling contracts contain a lease component. In July 2018, the FASB issued Accounting Standard Update 2018-11, Leases (Topic 842), Targeted Improvements, which (1) provides for a new transition method whereby entities may elect to adopt the Update using a prospective with cumulative catch-up approach and (2) provides lessors with a practical expedient, by class of underlying asset, to not separate lease and non-lease components and account for the combined component under Topic 606 when the non-lease component is the predominant element of the combined component. The lessor practical expedient is limited to circumstances in which the lease, if accounted for separately, would be classified as an operating lease under Topic 842. While we are still finalizing our analysis, we believe the non-lease component of our contracts is the predominant element and that the lease component, if accounted for separately, would be classified as an operating lease. Accordingly, we expect that substantially all of our contracts will qualify for the practical expedient provided for in Update 2018-11. Therefore, we expect to elect the practical expedient prescribed in Update 2018-11 and account for the combined component as a single component under Topic 606. We do not expect our adoption to have a material impact on the recognition of current or prior period revenues as compared to previous guidance nor do we expect a material impact to our pattern of revenue recognition in future periods. With respect to leases whereby we are the lessee, we expect to recognize upon adoption on January 1, 2019 lease liabilities ranging from approximately $75 million to $80 million and offsetting "right of use" assets ranging from approximately $65 million to $70 million. Our adoption of Update 2016-02 is not expected to have a material impact on our ability to comply with current debt covenants.

With the exception of the updated standards discussed above, there have been no accounting pronouncements issued and not yet effective that have significance, or potential significance, to our consolidated financial statements.

2. CHAPTER 11 PROCEEDINGS

Chapter 11 Cases and Emergence from Chapter 11

On the Petition Date, the Debtors filed voluntary petitions for reorganization under chapter 11 of the Bankruptcy Code in the Bankruptcy Court. The Debtors obtained joint administration of the Chapter 11 Cases under the caption In re Valaris plc, et al., Case No. 20-34114 (MI). On March 3, 2021, the Bankruptcy Court confirmed the Debtors' chapter 11 plan of reorganization.

On the Effective Date, we successfully completed our financial restructuring and together with the Debtors emerged from the Chapter 11 Cases. Upon emergence from the Chapter 11 Cases, we eliminated $7.1 billion of debt and obtained a $520 million capital injection by issuing the first lien secured notes (the "First Lien Notes"). See “Note 9 - Debt" for additional information on the First Lien Notes. On the Effective Date, the Legacy Valaris Class A ordinary shares were cancelled and common shares of Valaris with a nominal value of $0.01 per share (the “Common Shares”) were issued. Also, former holders of Legacy Valaris' equity were issued warrants (the "Warrants") to purchase Common Shares.

Below is a summary of the terms of the plan of reorganization:

•Appointed six new members to the Company's Board of Directors to replace all of the directors of Legacy Valaris, other than the director also serving as President and Chief Executive Officer at the Effective Date, who was re-appointed pursuant to the plan of reorganization. All but one of the seven directors became directors as of the Effective Date and one became a director on July 1, 2021.

•Obligations under Legacy Valaris's outstanding senior notes (the "Senior Notes") were cancelled and the related indentures were cancelled, except to the limited extent expressly set forth in the plan of reorganization and the holders thereunder received the treatment as set forth in the plan of reorganization;

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•The Legacy Valaris revolving credit facility (the "Revolving Credit Facility") was terminated and the holders thereunder received the treatment as set forth in the plan of reorganization;

•Holders of the Senior Notes received their pro rata share of (1) 38.48%, or 28,859,900, of Common Shares and (2) approximately 97.6% of the subscription rights to participate in the rights offering (the "Rights Offering") through which the Company offered $550 million of the First Lien Notes, which includes the backstop premium;

•Holders of the Senior Notes who participated in the Rights Offering received their pro ratashare of approximately 29.3%, or 21,975,000, of Common Shares, and senior noteholders who agreed to backstop the Rights Offering received their pro rata share of approximately 2.63%, or 1,975,500 of Common Shares and approximately $48.8 million in First Lien Notes as a backstop premium;

•Certain Revolving Credit Facility lenders ("RCF Lenders") who participated in the Rights Offering received their pro rata share of approximately 0.7%, or 525,000 Common Shares, RCF Lenders who agreed to backstop the Rights Offering received their pro rata share of 0.07%, or 49,500 of Common Shares and approximately $1.2 million in First Lien Notes as a backstop premium;

•Senior noteholders, solely with respect to Pride International LLC's 6.875% senior notes due 2020 and 7.875% senior notes due 2040, Ensco International 7.20% Debentures due 2027, and the 4.875% senior notes due 2022, 4.75% senior notes due 2024, 7.375% senior notes due 2025, 5.4% senior notes due 2042 and 5.85% senior notes due 2044, received an aggregate cash payment of $26.0 million in connection with settlement of certain alleged claims against the Company;

•The two RCF Lenders who chose to participate in the Rights Offering received their pro rata share of (1) 5.3%, or 4,005,000 of Common Shares (2) approximately 2.427% of the First Lien Notes (and associated Common Shares), (3) $7.8 million in cash, and (4) their pro rata share of the backstop premium. The RCF Lenders who entered into the amended restructuring support agreement and elected not to participate in the Rights Offering received their pro rata share of (1) 22.980%, or 17,235,000 of Common Shares and (2) $96.1 million in cash;

•Holders of general unsecured claims are entitled to receive payment in full within ninety days after the later of (a) the Effective Date and (b) the date such claim comes due;

•375,000 Common Shares were issued and $5.0 million was paid to Daewoo Shipbuilding & Marine Engineering Co., Ltd (the "Shipyard");

•Legacy Valaris Class A ordinary shares were cancelled and holders received 5,645,161 in Warrants exercisable for one Common Share per Warrant at initial exercise price of $131.88 per Warrant, in each case as may be adjusted from time to time pursuant to the applicable warrant agreement. The Warrants are exercisable for a period of seven years and will expire on April 29, 2028;

•All equity-based awards of Legacy Valaris that were outstanding were cancelled;

•On the Effective Date, Valaris Limited entered into a registration rights agreement with certain parties who received Common Shares;

•On the Effective Date, Valaris Limited entered into a registration rights agreement with certain parties who received First Lien Notes; and

•There were 0 borrowings outstanding against our debtor-in-possession ("DIP") facility and there were no DIP claims that were not due and payable on, or that otherwise survived, the Effective Date. The DIP Credit Agreement terminated on the Effective Date.

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Management Incentive Plan

In accordance with the plan of reorganization, Valaris Limited adopted the 2021 Management Incentive Plan (the “MIP”) as of the Effective Date and authorized and reserved 8,960,573 Common Shares for issuance pursuant to equity incentive awards to be granted under the MIP, which may be in the form of incentive stock options, nonstatutory stock options, restricted stock, restricted stock units, stock appreciation rights, dividend equivalents and cash awards or any combination thereof. See "Note 12 - Share Based Compensation" for more information on awards granted under the MIP after the Effective date.

Liabilities Subject to Compromise

The Debtors' pre-petition Senior Notes and related unpaid accrued interest as of the Petition Date were classified as Liabilities Subject to Compromise on our Consolidated Balance Sheets as of December 31, 2020 (Predecessor). The liabilities were reported at the amounts that were expected to be allowed as claims by the Bankruptcy Court.

Liabilities subject to compromise at December 31, 2020 (Predecessor) consisted of the following (in millions):


6.875% Senior notes due 2020	$	122.9
4.70% Senior notes due 2021	100.7
4.875% Senior notes due 2022	620.8
3.00% Exchangeable senior notes due 2024	849.5
4.50% Senior notes due 2024	303.4
4.75% Senior notes due 2024	318.6
8.00% Senior notes due 2024	292.3
5.20% Senior notes due 2025	333.7
7.375% Senior notes due 2025	360.8
7.75% Senior notes due 2026	1,000.0
7.20% Debentures due 2027	112.1
7.875% Senior notes due 2040	300.0
5.40% Senior notes due 2042	400.0
5.75% Senior notes due 2044	1,000.5
5.85% Senior notes due 2044	400.0
Amounts drawn under the Revolving Credit Facility	581.0
Accrued Interest on Senior Notes and Revolving Credit Facility	203.5
Rig holding costs(1)	13.9
Total liabilities subject to compromise	$	7,313.7

(1) Represents the holding costs incurred to maintain VALARIS DS-13 and VALARIS DS-14 in the shipyard.

The contractual interest expense on the outstanding Senior Notes and the Revolving Credit Facility was in excess of recorded interest expense by $132.9 million and $140.7 million for the four months ended April 30, 2021 (Predecessor) and for the year ended December 31, 2020 (Predecessor), respectively. This excess contractual interest was not included as interest expense on our Consolidated Statements of Operations as we had discontinued accruing interest on the Predecessor's Senior Notes and Revolving Credit Facility subsequent to the Petition Date. The Predecessor discontinued making interest payments on the Senior Notes beginning in June 2020.

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Pre-petition Charges

We have reported the backstop commitment fee and legal and other professional advisor fees incurred in relation to the Chapter 11 Cases, but prior to the Petition Date, as General and administrative expenses in our Consolidated Statements of Operations for the year ended December 31, 2020 (Predecessor) in the amount of $64.7 million.

Reorganization Items

Expenditures, gains and losses that are realized or incurred by the Debtors as of or subsequent to the Petition Date and as a direct result of the Chapter 11 Cases are reported as Reorganization items, net in our Consolidated Statements of Operations for the eight months ended December 31, 2021 (Successor), four months ended April 30, 2021 (Predecessor) and the year ended December 31, 2020 (Predecessor). These costs include legal and other professional advisory service fees pertaining to the Chapter 11 Cases, contract items related to rejecting and amending certain operating leases ("Contract items") and the effects of the emergence from bankruptcy, including the application of fresh start accounting. Additionally, Reorganization items, net for the year ended December 31, 2020 (Predecessor) included all adjustments made to the carrying amount of certain pre-petition liabilities reflecting claims that were expected to be allowed by the Bankruptcy Court and DIP facility fees.

The components of reorganization items, net were as follows (in millions):


	Successor		Predecessor
	Eight Months Ended December 31, 2021		Four Months Ended April 30, 2021		Year Ended December 31, 2020

DIP facility fees	$	—	$	—	$	20.0
Professional fees	17.2		93.4		66.8
Contract items	(1.7)		3.9		4.4

Reorganization items (fees)	15.5		97.3		91.2

Write-off of unamortized debt discounts, premiums and issuance costs	—		—		447.9
Contract items	—		0.5		(11.5)
Backstop premium	—		30.0		—
Gain on settlement of liabilities subject to compromise	—		(6,139.0)		—
Issuance of Common Shares for backstop premium	—		29.1		—
Issuance of Common Shares to the Shipyard	—		5.4		—
Write-off of unrecognized share-based compensation expense	—		16.0		—
Impact of newbuild contract amendments	—		350.7		—
Loss on fresh start adjustments	—		9,194.6		—
Reorganization items (non-cash)	—		3,487.3		436.4

Total reorganization items, net	$	15.5	$	3,584.6	$	527.6

Reorganization items (fees) unpaid	$	0.8	$	38.3	$	61.2
Reorganization items (fees) paid	$	14.7	$	59.0	$	30.0

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3. FRESH START ACCOUNTING

Applicability of Fresh Start Accounting

Upon emergence from bankruptcy, we qualified for and applied fresh start accounting, which resulted in the Company becoming a new entity for financial reporting purposes because (1) the holders of the then existing Class A ordinary shares of the Predecessor received less than 50 percent of the Common Shares of the Successor outstanding upon emergence and (2) the reorganization value of the Company’s assets immediately prior to confirmation of the plan of reorganization was less than the total of all post-petition liabilities and allowed claims.

The reorganization value derived from the range of enterprise values associated with the plan of reorganization was allocated to the Company’s identifiable tangible and intangible assets and liabilities based on their fair values (except for deferred income taxes). The amount of deferred income taxes recorded was determined in accordance with the applicable income tax accounting standard. The April 30, 2021 fair values of the Company’s assets and liabilities differ materially from their recorded values as reflected on the historical balance sheets.

Reorganization Value

The reorganization value represents the fair value of the Successor's total assets and was derived from the enterprise value associated with the plan of reorganization, which represents the estimated fair value of an entity's long-term debt and equity less unrestricted cash upon emergence from chapter 11. As set forth in the disclosure statement and approved by the Bankruptcy Court, third-party valuation advisors estimated the enterprise value to be between $1,860.0 million and $3,145.0 million. The enterprise value range of the reorganized Debtors was determined primarily by using a discounted cash flow analysis. The value agreed in the plan of reorganization is indicative of an enterprise value at the low end of this range, or $1,860.0 million.

The following table reconciles the enterprise value to the estimated fair value of Successor Common Shares as of the Effective Date (in millions, except per share value):


	April 30, 2021
Enterprise Value	$	1,860.0
Plus: Cash and cash equivalents	607.6
Less: Fair value of debt	(544.8)
Less: Warrants	(16.4)
Less: Noncontrolling interest	1.1
Less: Pension and other post retirement benefits liabilities	(189.0)
Less: Adjustments not contemplated in Enterprise Value	(639.0)
Fair value of Successor Common Shares	$	1,079.5
Shares issued upon emergence	75.0
Per share value	$	14.39

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The following table reconciles the enterprise value to the reorganization value as of the Effective Date (in millions):


	April 30, 2021
Enterprise Value	$	1,860.0
Plus: Cash and cash equivalents	607.6
Plus: Non-interest bearing current liabilities	346.0
Less: Adjustments not contemplated in Enterprise Value	(218.0)
Reorganization value of Successor assets	$	2,595.6

Adjustments not contemplated in Enterprise Value represent certain obligations of the Successor that were either not contemplated or contemplated in a different amount in the forecasted cash flows of the enterprise valuation performed by third-party valuation advisors that, had they incorporated those anticipated cash flows into their analysis, the resulting valuation would have been different. For the reconciliation of Reorganization value of Successor assets, this item includes certain tax balances, contract liabilities, as well as an adjustment for the fair value of pension obligations. The reconciliation to Successor Common Share value includes these same reconciling items as well as other current and non-current liabilities of the Successor at the emergence.

The enterprise value and corresponding implied equity value are dependent upon achieving the future financial results set forth in the valuation utilizing assumptions regarding future day rates, utilization, operating costs and capital requirements as of the emergence date. All estimates, assumptions, valuations and financial projections, including the fair value adjustments, the enterprise value and equity value projections, are inherently subject to significant uncertainties and the resolution of contingencies beyond our control. Accordingly, there is no assurance that the estimates, assumptions, valuations or financial projections will be realized, and actual results could vary materially.

Valuation Process

The fair values of the Company's principal assets and liabilities including property, plant and equipment as well as our 50% equity interest in ARO and our notes receivable from ARO, options to purchase Newbuild Rigs, the First Lien Notes, pensions and Warrants were estimated with the assistance of third-party valuation advisors.

Property, Plant and Equipment

The valuation of the Company’s drilling rigs was estimated by using an income approach or estimated sales price. These valuations were based on unobservable inputs that require significant judgments for which there is limited information, including, in the case of an income approach, assumptions regarding future day rates, utilization, operating costs, reactivation costs and capital requirements. In developing these assumptions, forecasted day rates and utilization took into account current market conditions and our anticipated business outlook. The cash flows were discounted at our weighted average cost of capital ("WACC"), which was derived from a blend of our after-tax cost of debt and our cost of equity, and computed using public share price information for similar offshore drilling market participants, certain U.S. Treasury rates and certain risk premiums specific to the Company.

Our remaining property and equipment, including owned real estate and other equipment, was valued using a cost approach, in which the estimated replacement cost of the assets was adjusted for physical depreciation and obsolescence, where applicable, to arrive at estimated fair value.

The estimated fair value of our property and equipment includes an adjustment to reconcile to our reorganization value.

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Notes Receivable from ARO

The fair value of the long-term notes receivable from ARO was estimated using an income approach to value the forecasted cash flows attributed to the note receivable using a discount rate based on a comparable yield with a country-specific risk premium.

Investment in ARO

We estimated the fair value of the equity investment in ARO primarily by applying an income approach, using projected discounted cash flows of the underlying assets, a risk-adjusted discount rate and an estimated effective income tax rate.

Options to Purchase Newbuild Rigs

The fair value of the options to purchase Newbuild Rigs was estimated using an option pricing model utilizing the estimated fair value of a newbuild rig, estimated purchase price upon exercise of the options, the holding period, equity volatility and the risk-free rate.

First Lien Notes

The fair value of the First Lien Notes was determined to approximate the par value based on third-party valuation advisors’ analysis of the Company’s collateral coverage, financial metrics, and interest rate for the First Lien Notes relative to market rates of recent placements of a similar term for industry participants with similar credit risk.

Pensions

Warrants

The fair value of the Warrants was determined using an option pricing model considering the contractual terms of the Warrant issuance. The key market data assumptions for the option pricing model are the estimated volatility and the risk-free rate. The volatility assumption was estimated using market data for offshore drilling market participants with consideration for differences in leverage. The risk-free rate assumption was based on U.S. Treasury Constant Maturity rates with a comparable term.

Condensed Consolidated Balance Sheet

The adjustments included in the following Condensed Consolidated Balance Sheet reflect the effects of the transactions contemplated by the plan of reorganization and executed by the Company on the Effective Date (reflected in the column “Reorganization Adjustments”), and fair value and other required accounting adjustments resulting from the adoption of fresh start accounting (reflected in the column “Fresh Start Accounting Adjustments”). The explanatory notes provide additional information with regard to the adjustments recorded.

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	As of April 30, 2021
	Predecessor		Reorganization Adjustments			Fresh Start Accounting Adjustments			Successor

ASSETS
CURRENT ASSETS
Cash and cash equivalents	$	280.2	$	327.4	(a)	$	—		$	607.6
Restricted cash	45.7		42.7		(b)	—			88.4
Accounts receivable, net	425.9		—			—			425.9
Other current assets	370.1		1.5		(c)	(281.1)		(o)	90.5
Total current assets	1,121.9		371.6			(281.1)			1,212.4
PROPERTY AND EQUIPMENT, NET	10,026.4		(417.6)		(d)	(8,699.7)		(p)	909.1
LONG-TERM NOTES RECEIVABLE FROM ARO	442.7		—			(214.4)		(q)	228.3
INVESTMENT IN ARO	123.9		—			(43.4)		(r)	80.5
OTHER ASSETS	166.4		(10.0)		(e)	8.9		(s)	165.3
	$	11,881.3	$	(56.0)		$	(9,229.7)		$	2,595.6
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable - trade	$	161.5	$	13.1	(f)	$	(.5)	(t)	$	174.1
Accrued liabilities and other	290.7		(12.4)		(g)	(61.8)		(u)	216.5
Total current liabilities	452.2		0.7			(62.3)			390.6
LONG-TERM DEBT	—		544.8		(h)	—			544.8
OTHER LIABILITIES	706.2		(55.2)		(i)	(85.6)		(v)	565.4
Total liabilities not subject to compromise	1,158.4		490.3			(147.9)			1,500.8
LIABILITIES SUBJECT TO COMPROMISE	7,313.7		(7,313.7)		(j)	—			—
COMMITMENTS AND CONTINGENCIES
VALARIS SHAREHOLDERS' EQUITY
Predecessor Class A ordinary shares	82.5		(82.5)		(k)	—			—
Predecessor Class B ordinary shares	0.1		(0.1)		(k)	—			—
Successor common shares	—		0.8		(l)	—			0.8
Successor stock warrants	—		16.4		(m)	—			16.4
Predecessor additional paid-in capital	8,644.0		(8,644.0)		(k)	—			—
Successor additional paid-in capital	—		1,078.7		(l)	—			1,078.7
Retained deficit	(5,147.4)		14,322.6		(n)	(9,175.2)		(w)	—
Accumulated other comprehensive loss	(93.4)		—			93.4		(x)	—
Predecessor treasury shares	(75.5)		75.5		(k)	—			—
Total Valaris shareholders' equity	3,410.3		6,767.4			(9,081.8)			1,095.9
NONCONTROLLING INTERESTS	(1.1)		—			—			(1.1)
Total equity	3,409.2		6,767.4			(9,081.8)			1,094.8
	$	11,881.3	$	(56.0)		$	(9,229.7)		$	2,595.6

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Reorganization Adjustments

(a) Cash

Represents the reorganization adjustments (in millions):


Receipt of cash for First Lien Notes	$	500.0
Loan proceeds from backstop lenders	20.0
Funds received for liquidation of rabbi trust related to certain employee benefits	17.6
Payments to Predecessor creditors	(129.9)
Transfer of funds for payment of certain professional fees to escrow account	(42.7)
Payment for certain professional services fees	(29.0)
Various other	(8.6)
	$	327.4

(b) Restricted cash

Reflects the reorganization adjustment to record the transfer of cash for payment of certain professional fees to restricted cash, which will be held in escrow until billings from professionals have been received and reconciled at which time the funds in the account will be released.

Reflects certain prepayments incurred upon emergence.

(d) Property and Equipment, net

Reflects the reorganization adjustment to remove $417.6 million of work-in-process related to the Newbuild Rigs. These values have been removed from property and equipment, net, based on the terms of the amended agreements with the Shipyard. As a result of the option to take delivery, we removed the historical work-in-process balances from the balance sheet.

(e) Other assets

Represents the reorganization adjustments (in millions):


Liquidation of rabbi trust related to certain employee benefits	$	(17.6)
Elimination of right-of-use asset associated with Newbuild Rigs	(5.5)
Fair value of options to purchase Newbuild Rigs	13.1
	$	(10.0)

Our supplemental executive retirement plans (the "SERP") are non-qualified plans that provided eligible employees an opportunity to defer a portion of their compensation for use after retirement. The SERP was frozen to the entry of new participants in November 2019 and to future compensation deferrals as of January 1, 2020. Upon emergence, assets previously held in a rabbi trust maintained for the SERP were liquidated and the SERP was amended.

In accordance with the amended agreement with the Shipyard, our leases were terminated and we have eliminated the historical right-of-use asset associated with the berthing locations of VALARIS DS-13 and VALARIS DS-14.

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Additionally, upon effectiveness of the plan of reorganization, the amended agreement with the Shipyard provides the Company with the option to purchase the Newbuild Rigs. The reorganization adjustments include an asset that reflects the fair value of the option to purchase the Newbuild Rigs and embedded feature related to the ability, under the amended agreements with the Shipyard, for the equity issued pursuant to this arrangement to be put to the Company for $8.0 million of consideration for each rig, should we choose to take delivery.

(f) Accounts payable - trade

Reflects the following reorganization adjustments (in millions):


Professional fees incurred upon emergence	$	26.1
Payment of professional fees incurred prior to emergence	(12.6)
Payment of certain accounts payable incurred prior to emergence	(0.4)
	$	13.1

(g) Accrued liabilities and other

Reflects the following reorganization adjustments (in millions):


Elimination of lease liabilities associated with Newbuild Rigs	$	(5.0)
Elimination of accrued post-petition holding costs associated with Newbuild Rigs	(4.1)
Payment of certain accrued liabilities incurred prior to emergence	(3.3)
	$	(12.4)

In accordance with the amended agreement with the Shipyard, our leases were terminated and we have eliminated the historical lease liability associated with the berthing locations of VALARIS DS-13 and VALARIS DS-14. Accrued post-petition holding costs have also been eliminated as a result of the amendments made effective upon emergence. Additionally, reorganization adjustments to accrued liabilities and other includes an amount primarily related to payment of professional fees incurred prior to emergence.

(h) Long-term debt

Reflects the reorganization adjustment to record the issuance of the $550.0 million aggregate principal amount of First Lien Notes and debt issuance costs of $5.2 million.

(i) Other liabilities

Reflects the following reorganization adjustments (in millions):


Elimination of construction contract intangible liabilities associated with Newbuild Rigs	$	(49.9)
Elimination of accrued post-petition holding costs associated with Newbuild Rigs	(4.7)
Elimination of lease liabilities associated with Newbuild Rigs	(0.6)
	$	(55.2)

The reorganization adjustments to other liabilities primarily relate to the elimination of construction contract intangible liabilities associated with the Newbuild Rigs. These construction contract intangible liabilities were recorded in purchase accounting for the original contracting entity. As the amended contract is structured as an option whereby we have the right, not the obligation to take delivery of the rigs, there is no longer an intangible liability associated with the contracts.

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We have eliminated the historical lease liability associated with the berthing locations of VALARIS DS-13 and VALARIS DS-14 and accrued post-petition holding costs as described in (g) above.

(j) Liabilities subject to compromise

Reflects the following reorganization adjustments (in millions):


Settlement of liabilities subject to compromise	$	7,313.7
Issuance of common stock to Predecessor creditors	(721.0)
Issuance of common stock to backstop parties	(323.8)
Payments to Predecessor creditors	(129.9)
Gain on settlement of liabilities subject to compromise	$	6,139.0

(k) Predecessor ordinary shares, additional paid-in capital and treasury shares

Represents the cancellation of the Predecessor's ordinary shares of $82.6 million, additional paid-in capital of $8,644.0 million and treasury stock of $75.5 million.

(l) Successor common shares and additional paid-in capital

Represents par value of 75 million new Common Shares of $0.8 million and capital in excess of par value of $1,078.7 million.

(m) Successor stock warrants

On the Effective Date and pursuant to the plan of reorganization, Valaris Limited issued an aggregate of 5.6 million Warrants exercisable for up to an aggregate of 5.6 million Common Shares to former holders of Legacy Valaris's equity interests. The fair value of the Warrants as of the Effective Date was $16.4 million.

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(n) Retained deficit

Represents the reorganization adjustments to total equity as follows (in millions):


Gain on settlement of liabilities subject to compromise	$	(6,139.0)
Issuance of Common Shares for backstop premium	29.1
Issuance of Common Shares to the Shipyard	5.4
Write-off of unrecognized share-based compensation expense	16.0
Professional fees and success fees	35.9
Backstop premium	30.0
Impact of newbuild contract amendments	350.7
Reorganization items, net	(5,671.9)
Cancellation of Predecessor common shares	(82.6)
Cancellation of Predecessor treasury shares	75.5
Cancellation of Predecessor additional paid in capital	(7,856.4)
Cancellation of equity component of Predecessor convertible notes	(220.0)
Cancellation of Predecessor cash and equity compensation plans	(583.6)
Fair value of Warrants	16.4
	$	(14,322.6)

Fresh Start Adjustments

(o) Other current assets

Reflects the fresh start adjustments to record the estimated fair value of other current assets as follows (in millions):


Elimination of materials and supplies	$	(260.8)
Elimination of historical deferred contract drilling expenses	(20.3)
	$	(281.1)

Primarily reflects the fresh start adjustment to eliminate the historical balance for materials and supplies as the result of a change in accounting policies upon emergence.

The fresh start adjustment for the elimination of historical deferred contract drilling expenses primarily relates to deferred mobilization costs, deferred contract preparation costs and deferred certification costs. Costs incurred for mobilization and contract preparation prior to the commencement of drilling services are deferred and subsequently amortized over the term of the related drilling contract. Additionally, we must obtain certifications from various regulatory bodies in order to operate our drilling rigs and must maintain such certifications through periodic inspections and surveys. The costs incurred in connection with maintaining such certifications, including inspections, tests, surveys and drydock, as well as remedial structural work and other compliance costs, are deferred and amortized on a straight-line basis over the corresponding certification periods. These deferred costs have no future economic benefit and are eliminated from the fresh start financial statements.

(p) Property and equipment, net

Reflects the fresh start adjustments to historical amounts to record the estimated fair value of property and equipment.

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(q) Long-term notes receivable from ARO

Reflects the fresh start adjustment to record the estimated fair value of the long-term notes receivable from ARO. The fair value of the long-term notes receivable from ARO was estimated using an income approach to value the forecasted cash flows attributed to the note receivable using a discount rate based on comparable yield with a country-specific risk premium.

(r) Investment in ARO

Reflects the fresh start adjustment to record the estimated fair value of the equity investment in ARO.

(s) Other assets

Reflects the fresh start adjustments to record the estimated fair value of other assets as follows (in millions):


Deferred tax impacts of certain fresh start adjustments	$	21.1
Fair value of contracts with customers	8.5
Fair value adjustments to right-of-use assets	0.4
Elimination of historical deferred contract drilling expenses	(16.5)
Elimination of other deferred costs	(4.6)
	$	8.9

The fresh start adjustment for deferred income tax assets represents the estimated incremental deferred income taxes, which reflects the tax effect of the differences between the estimated fair value of certain assets and liabilities recorded under fresh start accounting and the carryover tax basis of those assets and liabilities.

The fresh start adjustment to record the estimated fair value of contracts with customers represents the intangible assets recognized for firm customer contracts in place at the Effective Date that have favorable contract terms as compared to current market day rates for comparable drilling rigs.The various factors considered in the adjustment are (1) the contracted day rate for each contract, (2) the remaining term of each contract, (3) the rig class and (4) the market conditions for each respective rig class at the emergence date. The intangible assets are computed based on the present value of the difference in cash inflows over the remaining contract term as compared to a hypothetical contract with the same remaining term at an estimated current market day rate using a risk-adjusted discount rate and an estimated effective income tax rate. This balance will be amortized to operating revenues over the respective remaining contract terms on a straight-line basis.

The fresh start adjustment to right-of-use assets reflects the remeasuring of our operating leases as of the emergence date. Certain operating leases had unfavorable terms as of the emergence date, and as a result the right-of-use asset for such leases does not equal the lease liability upon emergence.

The fresh start adjustment to eliminate historical deferred contract drilling expenses reflects the noncurrent portion of historical deferred contract drilling expenses described in (o) above as well as the elimination of customer contract intangibles previously recorded in purchase accounting for the Rowan Transaction.

The fresh start adjustments to eliminate other deferred costs reflect non-operational deferred costs that have no future economic benefit.

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(t) Accounts payable - trade

The fresh start adjustment to accounts payable trade reflects the write off of certain deferred amounts related to our operating leases. This value was eliminated through the remeasurement of our leases as of the emergence date.

(u) Accrued liabilities and other

Reflects the fresh start adjustments to record the estimated fair value of current liabilities as follows (in millions):


Elimination of customer payable balance	$	(36.8)
Elimination of historical deferred revenues	(25.9)
Fair value of contracts with customers	0.5
Fair value adjustment to lease liabilities	0.4
	$	(61.8)

The fresh start adjustment to eliminate the customer payable balance is related to the change in accounting policy to present the balance on a net basis.

The fresh start adjustment to eliminate historical deferred revenues is primarily related to amounts previously received for the reimbursement for capital upgrades, upfront contract deferral fees and mobilization. Such amounts are deferred and subsequently amortized over the term of the related drilling contract. The deferred revenue does not represent any future performance obligations and is therefore eliminated as a fresh start accounting adjustment.

The fresh start adjustment to record the estimated fair value of contracts with customers reflects the intangible liabilities recognized for firm customer contracts in place at the Effective Date that have unfavorable contract terms as compared to current market day rates for comparable drilling rigs. The various factors considered in the adjustment are (1) the contracted day rate for each contract, (2) the remaining term of each contract, (3) the rig class and (4) the market conditions for each respective rig class at the emergence date. The intangible liabilities are computed based on the present value of the difference in cash inflows over the remaining contract term as compared to a hypothetical contract with the same remaining term at an estimated current market day rate using a risk-adjusted discount rate and an estimated effective income tax rate. This balance will be amortized to operating revenues over the respective remaining contract terms on a straight-line basis.

The fresh start adjustment to lease liabilities reflects the remeasuring of our operating leases as of the Effective Date.

(v) Other liabilities

Reflects the fresh start adjustments to record the estimated fair value of other liabilities as follows (in millions):


Adjustment to fair value of pension and other post-retirement plan liabilities	$	(82.7)
Elimination of historical deferred revenue	(5.9)
Deferred tax impacts of certain fresh start adjustments	1.7
Fair value adjustments to lease liabilities	1.1
Fair value adjustments to other liabilities	0.2
	$	(85.6)

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The fresh start adjustment to fair value pension and other post-retirement plan liabilities results from the remeasurement of the pension and other post-retirement benefit plans at the emergence date.

The fresh start adjustment to eliminate deferred revenues reflects the noncurrent portion of deferred revenues described in (u) above.

The fresh start adjustment for deferred income tax liabilities represents the estimated incremental deferred taxes, which reflects the tax effect of the differences between the estimated fair value certain assets and liabilities recorded under fresh start accounting and the carryover tax basis of those assets and liabilities.

The fresh start adjustment to lease liabilities reflects the remeasuring of our operating leases as of the Effective Date.

(w) Retained Deficit

Reflects the fresh start adjustments to retained deficit as follows (in millions):


Fair value adjustments to prepaid and other current assets	$	(281.1)
Fair value adjustments to property	(8,699.7)
Fair value of intangible assets	8.5
Fair value adjustment to investment in ARO	(43.4)
Fair value adjustment to note receivable from ARO	(214.4)
Fair value adjustments to other assets	(20.7)
Fair value adjustments to other current liability	62.8
Fair value of intangible liabilities	(0.5)
Fair value adjustment to other liabilities	87.3
Elimination of Predecessor accumulated other comprehensive loss	(93.4)
Total fresh start adjustments included in reorganization items, net	$	(9,194.6)
Tax impact of fresh start adjustments	19.4
	$	(9,175.2)

(x) Accumulated other comprehensive loss

Reflects the fresh start adjustments for the elimination of Predecessor accumulated other comprehensive loss through Reorganization items, net.

4. REVENUE FROM CONTRACTS WITH CUSTOMERS

WeOur drilling contracts with customers provide a drilling rig and drilling services on a day rate contract basis. Under day rate contracts, we provide an integrated service that includes the provision of a drilling rig and rig crews for which we receive a daily rate that may vary between the full rate and zero rate throughout the duration of the contractual term, depending on the operations of the rig.

We also may receive lump-sum fees or similar compensation for the mobilization, demobilization and capital upgrades of our rigs. Our customers bear substantially all of the costs of constructing the well and supporting drilling operations, as well as the economic risk relative to the success of the well.

Our ~~integrated~~drilling contracts contain a lease component and we have elected to apply the practical expedient provided under ASC 842 to not separate the lease and non-lease components and apply the revenue recognition guidance in ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606). Our drilling service provided under each drilling contract is a single performance obligation satisfied over time and comprised of a series of

119

distinct time increments, or service periods. Total revenue is determined for each individual drilling contract by estimating both fixed and variable consideration expected to be earned over the contract term. Fixed consideration generally relates to activities such as mobilization, demobilization and capital upgrades of our rigs that are not distinct performance obligations within the context of our contracts and is recognized on a straight-line basis over the contract term. Variable consideration generally relates to distinct service periods during the contract term and is recognized in the period when the services are performed.

The amount estimated for variable consideration is only recognized as revenue to the extent that it is probable that a significant reversal will not occur during the contract term. We have applied the optional exemption afforded in ~~Update~~ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606), and have not disclosed the variable consideration related to our estimated future day rate revenues. The remaining duration of our drilling contracts based on those in place as of December 31, ~~2018~~2021 was between approximately ~~one~~1 month and ~~four~~3.5 years.

Day Rate Drilling Revenue

Our drilling contracts provide for payment on a day rate basis and include a rate schedule with higher rates for periods when the drilling ~~unit~~rig is operating and lower rates or zero rates for periods when drilling operations are interrupted or restricted. The day rate invoiced to the customer is determined based on the varying rates applicable to specific activities performed on an hourly or other time increment basis. Day rate consideration is allocated to the distinct hourly or other time increment to which it relates within the contract term and is generally recognized consistent with the contractual rate invoiced for the services provided during the respective period. Invoices are typically issued to our customers on a monthly basis and payment terms on customer invoices are typically ~~range from~~ 30 ~~to 45~~ days.

Certain of our contracts contain performance incentives whereby we may earn a bonus based on pre-established performance criteria. Such incentives are generally based on our performance over individual monthly time periods or individual wells. Consideration related to performance bonus is generally recognized in the specific time period to which the performance criteria was attributed.

We may receive termination fees if certain drilling contracts are terminated by the customer prior to the end of the contractual term. Such compensation is recognized as revenue when our performance obligation is satisfied, the termination fee can be reasonably measured and collection is probable. For the year ended December 31, 2017, operating revenues included $185.0 million for the lump-sum consideration received in settlement and release of the ENSCO DS-9 customer's ongoing early termination obligations. For the year ended December 31, 2016, operating revenues included $20.0 million for the lump-sum consideration received in settlement of the ENSCO 8503 customer's remaining obligations under the contract.

Mobilization / Demobilization Revenue

In connection with certain contracts, we receive lump-sum fees or similar compensation for the mobilization of equipment and personnel prior to the commencement of drilling services or the demobilization of equipment and personnel upon contract completion. Fees received for the mobilization or demobilization of equipment and personnel are included in ~~operating~~Operating revenues. The costs incurred in connection with the mobilization and demobilization of equipment and personnel are included in ~~contract~~Contract drilling expense.

Mobilization fees received prior to commencement of drilling operations are recorded as a contract liability and amortized on a straight-line basis over the contract term. Demobilization fees expected to be received upon contract completion are estimated at contract inception and recognized on a straight-line basis over the contract term. In some cases, demobilization fees may be contingent upon the occurrence or non-occurrence of a future event. In such cases, this may result in cumulative-effect adjustments to demobilization revenues upon changes in our estimates of future events during the contract term.

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Capital Upgrade / Contract Preparation Revenue

In connection with certain contracts, we receive lump-sum fees or similar compensation for requested capital upgrades to our drilling rigs or for other contract preparation work. Fees received for requested capital upgrades and other contract preparation work are recorded as a contract liability and amortized on a straight-line basis over the contract term to operating revenues. Costs incurred for capital upgrades are capitalized and depreciated over the useful life of the asset.

Contract Assets and Liabilities

Contract assets represent amounts recognized as revenue but for which the right to invoice the customer is dependent upon our future performance. Once the previously recognized revenue is invoiced, the corresponding contract asset, or a portion thereof, is transferred to accounts receivable.

Contract liabilities generally represent fees received for mobilization, capital upgrades or ~~capital upgrades.~~in the case of our 50/50 joint venture with Saudi Aramco, represent the difference between the amounts billed under the bareboat charter arrangements and lease revenues earned up to the respective period end. See “Note 6 – Equity Method Investment in ARO" for additional details regarding our balances with ARO.

Contract assets and liabilities are presented net on our ~~consolidated balance sheet~~Consolidated Balance Sheets on a contract-by-contract basis. Current contract assets and liabilities are included in ~~other~~Other current assets and ~~accrued~~Accrued liabilities and other, respectively, and noncurrent contract assets and liabilities are included in ~~other~~Other assets and ~~other~~Other liabilities, respectively, on our ~~consolidated balance sheets.~~Consolidated Balance Sheets.

The following table summarizes our contract assets and contract liabilities (in millions):


						Successor		Predecessor
	December 31, 2018		December 31, 2017			December 31, 2021		December 31, 2020
Current contract assets	$	4.0	$	3.0	Current contract assets	$	0.3	$	1.4
Noncurrent contract assets	$	—	$	2.8	Noncurrent contract assets	$	—	$	0.4
Current contract liabilities (deferred revenue)	$	56.9	$	71.9	Current contract liabilities (deferred revenue)	$	45.8	$	57.6
Noncurrent contract liabilities (deferred revenue)	$	20.5	$	51.2	Noncurrent contract liabilities (deferred revenue)	$	10.8	$	14.3

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Changes in contract assets and liabilities during the period are as follows (in millions):


	Contract Assets		Contract Liabilities
Balance as of December 31, 2020 (Predecessor)	$	1.8	$	71.9
Revenue recognized in advance of right to bill customer	2.3		—
Increase due to cash received	—		10.2
Decrease due to amortization of deferred revenue that was included in the beginning contract liability balance	—		(14.8)

Decrease due to transfer to receivables during the period	(1.6)		—
Fresh start accounting revaluation	(0.3)		(31.6)
Balance as of April 30, 2021 (Predecessor)	2.2		35.7
Balance as of May 1, 2021 (Successor)	2.2		35.7
Revenue recognized in advance of right to bill customer	2.5		—
Increase due to cash received	—		80.1

Decrease due to amortization of deferred revenue that was added during the period	—		(21.5)
Decrease due to transfer to receivables and payables during the period	(4.4)		(37.7)
Balance as of December 31, 2021 (Successor)	$	0.3	$	56.6

Contract Assets Contract Liabilities
Balance as of December 31, 2017 $ 5.8
$ 123.1
Revenue recognized in advance of right to bill customer 2.2
—
Increase due to cash received —
49.4
Decrease due to amortization of deferred revenue that was included in the beginning contract liability balance —
(72.0 )
Decrease due to amortization of deferred revenue that was added during the period —
(23.1 )
Decrease due to transfer to receivables during the period (4.0 ) —
Balance as of December 31, 2018 $ 4.0
$ 77.4

Deferred Contract Costs

Costs incurred for upfront rig mobilizations and certain contract preparations are attributable to our future performance obligation under each respective drilling contract. ~~Such~~These costs are deferred and amortized on a straight-line basis over the contract term. Demobilization costs are recognized as incurred upon contract completion. Costs associated with the mobilization of equipment and personnel to more promising market areas without contracts are expensed as incurred. Deferred contract costs were included in ~~other~~Other current assets and ~~other~~Other assets on our ~~consolidated balance sheets~~Consolidated Balance Sheets and totaled ~~$23.5~~$31.4 million and ~~$40.6~~$13.8 million as of December 31, ~~2018~~2021 (Successor) and ~~2017,~~December 31, 2020 (Predecessor), respectively. ~~Amortization~~For the Successor, during the eight months ended December 31, 2021, amortization of such costs totaled ~~$34.0 million~~, ~~$28.1 million and $42.5 million for~~$22.0 million. For the ~~years~~Predecessor, during the four months ended April 30, 2021, the year ended December 31, ~~2018, 2017~~2020 and ~~2016,~~the year ended December 31, 2019, amortization of such costs totaled $7.6 million, $42.1 million and $42.1 million respectively.

Property and Equipment

Concurrent with our emergence from bankruptcy, we applied fresh start accounting and adjusted the carrying value of our drilling rigs to estimated fair value. See "Note 3 - Fresh Start Accounting" to our consolidated financial statements included in "Item 8. Financial Statements and Supplementary Data" for more information. As of December 31, 2021, the carrying value of our property and equipment totaled $890.9 million, which represented 34% of total assets. This carrying value reflects the application of our property and equipment accounting policies, which incorporate our estimates, judgments and assumptions relative to the capitalized costs, useful lives and salvage values of our rigs.

The judgments and assumptions used in determining the next overhaul or the economic lives of the components of our property and equipment reflect both historical experience and expectations regarding future operations, utilization and performance of our assets. The use of different estimates, judgments and assumptions in the establishment of our property and equipment accounting policies, especially those involving the useful lives of the significant components our rigs, would likely result in materially different asset carrying values and operating results.

Property and equipment held-for-sale is recorded at the lower of net book value or fair value less cost to sell.

Our fleet of 16 floater rigs represented 45% of the gross cost and the net carrying amount of our depreciable property and equipment as of December 31, 2021. Our fleet of 33 jackup rigs represented 44% of the gross cost and the net carrying amount of our depreciable property and equipment as of December 31, 2021.

Impairment of Property and Equipment

During the four months ended April 30, 2021, we recorded an aggregate pre-tax, non-cash impairment with respect to certain floaters of $756.5 million. During the year ended December 31, 2020 and the year ended December 31, 2019, we recorded an aggregate pre-tax, non-cash impairment with respect to certain floaters, jackups and spare equipment of $3.6 billion and $98.4 million, respectively. See "Note 8 - Property and Equipment" to our consolidated financial statements included in "Item 8. Financial Statements and Supplementary Data" for additional information on our impairments of property and equipment.

We evaluate the carrying value of our property and equipment, primarily our drilling rigs, on a quarterly basis to identify events or changes in circumstances ("triggering events") that indicate that the carrying value of such rigs may not be recoverable. Generally, extended periods of idle time and/or inability to contract rigs at economical rates are an indication that a rig may be impaired. Impairment situations may arise with respect to specific individual rigs, groups of rigs, such as a specific type of drilling rig, or rigs in a certain geographic location.

Our judgments and assumptions about future cash flows to be generated by our drilling rigs are highly subjective and based on consideration of the following:

•global macroeconomic and political environment,

•historical utilization, day rate and operating expense trends by asset class,

•regulatory requirements such as surveys, inspections and recertification of our rigs,

•remaining useful lives of our rigs,

•expectations on the use and eventual disposition of our rigs,

•weighted-average cost of capital,

•oil price projections,

•sanctioned and unsanctioned offshore project data,

•offshore economic project break-even data,

•global rig supply and construction orders,

•global rig fleet capabilities and relative rankings, and

•expectations of global rig fleet attrition.

We collect and analyze the above information to develop a range of estimated utilization levels, day rates, expense levels and capital requirements, as well as estimated cash flows generated upon disposition. The drivers of these assumptions that impact our impairment analyses include projections of future oil prices and timing of global rig fleet attrition, which, in large part, impact our estimates on timing and magnitude of recovery from the current industry downturn. However, there are numerous judgments and assumptions unique to the projected future cash flows of each rig that individually, and in the aggregate, can significantly impact the recoverability of its carrying value.

The highly cyclical nature of our industry cannot be reasonably predicted with a high level of accuracy and, therefore, differences between our historical judgments and assumptions and actual results will occur. We reassess our judgments and assumptions in the period in which significant differences are observed and may conclude that a triggering event has occurred and perform a recoverability test. We recognized impairment charges in recent periods upon observation of significant unexpected changes in our business climate and estimated useful lives of certain assets.

There are numerous factors underlying the highly cyclical nature of our industry that are reasonably likely to impact our judgments and assumptions including, but not limited to, the following:

•changes in global economic conditions and demand,

•production levels of the Organization of Petroleum Exporting Countries (“OPEC”),

•production levels of non-OPEC countries,

•advances in exploration and development technology,

•offshore and onshore project break-even economics,

•development and exploitation of alternative fuels,

•natural disasters or other operational hazards,

•changes in relevant law and governmental regulations,

•political instability and/or escalation of military actions in the areas we operate,

•changes in the timing and rate of global newbuild rig construction, and

•changes in the timing and rate of global rig fleet attrition.

Income Taxes

We conduct operations and earn income in numerous countries and are subject to the laws of numerous tax jurisdictions. As of December 31, 2021, our Consolidated Balance Sheet included an $47.3 million net deferred income tax asset, a $31.0 million liability for income taxes currently payable and a $320.2 million liability for unrecognized tax benefits, inclusive of interest and penalties.

•During recent years, the number of tax jurisdictions in which we conduct operations has increased.

•We may conduct future operations in certain tax jurisdictions where tax laws are not well developed, and it may be difficult to secure adequate professional guidance.

Pension and Other Postretirement Benefits

Our pension and other postretirement benefit liabilities and costs are based upon actuarial computations that reflect our assumptions about future events, including long-term asset returns, interest rates, annual compensation increases, mortality rates and other factors. Key assumptions at December 31, 2021, included (1) a weighted average discount rate of 2.73% to determine pension benefit obligations, (2) a weighted average discount rate of 2.84% to determine net periodic pension cost and (3), an expected long-term rate of return on pension plan assets of 6.03% to determine net periodic pension cost. Upon emergence, our pension and other post retirement plans were remeasured as of the Effective Date. Key assumptions at the Effective Date included (1) a weighted average discount rate of 2.81% to determine pension benefit obligations and (2) an expected long-term rate of return on pension plan assets of 6.03% to determine net periodic pension cost. The assumed discount rate is based upon the average yield for Moody’s Aa-rated corporate bonds, and the rate of return assumption reflects a probability distribution of expected long-term returns that is weighted based upon plan asset allocations. Using our key assumptions at December 31, 2021, a one-percentage-point decrease in the assumed discount rate would increase our recorded pension and other postretirement benefit liabilities by approximately $109.1 million, while a one-percentage-point decrease (increase) in the expected long-term rate of return on plan assets would increase (decrease) annual net benefits cost by approximately $4.1 million. To develop the expected long-term rate of return on assets assumption, we considered the current level of expected returns on risk-free investments (primarily government bonds), the historical level of the risk premium associated with the plans’ other asset classes, and the expectations for future returns of each asset class. The expected return for each asset class was then weighted based upon the current asset allocation to develop the expected long-term rate of return on assets assumption for the plan, which increased to 6.26% at December 31, 2021 from 6.03% at December 31, 2020. See "Note 1 3 - Pension and Other Post Retirement Benefits" to our consolidated financial statements included in "Item 8. Financial Statements and Supplementary Data" for information on our pension and other postretirement benefit plans.

NEW ACCOUNTING PRONOUNCEMENTS

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Not applicable.

Item 8. Financial Statements and Supplementary Data

MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

Under the supervision and with the participation of management, including the Chief Executive Officer and Interim Chief Financial Officer, we have conducted an evaluation of the effectiveness of our internal control over financial reporting based on the criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on this evaluation, we have concluded that our internal control over financial reporting is effective as of December 31, 2021 to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

February 22, 2022

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders

Valaris Limited:

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheets of Valaris Limited and subsidiaries (the Company) as of December 31, 2021 (Successor) and 2020 (Predecessor), the related consolidated statements of operations, comprehensive loss, and cash flows for the periods from May 1, 2021 to December 31, 2021 (Successor period) and from January 1, 2021 to April 30, 2021 and for each of the years in the two-year period ended December 31, 2020 (Predecessor periods), and the related notes (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021 (Successor) and 2020(Predecessor), and the results of its operations and its cash flows for the Successor and Predecessor periods, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated February 22, 2022 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.

New Basis of Presentation

Basis for Opinion

Critical Audit Matters

Valuation of drilling rigs upon emergence from bankruptcy

Income tax positions pertaining to certain tax transactions

The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested the operating effectiveness of certain internal controls over the Company's income tax process. This included controls related to the interpretation of tax laws applicable to certain transactions and the assessment that tax positions pertaining to those transactions have a more than 50 percent likelihood of being sustained with taxing authorities. We involved tax professionals with specialized skills and knowledge, who assisted in evaluating the Company's interpretation of local tax laws and assessment of whether tax positions had a greater than 50 percent likelihood of being sustained with taxing authorities.

/s/ KPMG LLP

We have served as the Company’s auditor since 2002.

Houston, Texas

February 22, 2022

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders

Valaris Limited:

Opinion on Internal Control Over Financial Reporting

We have audited Valaris Limited and subsidiaries’ (the Company) internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2021 (Successor) and 2020 (Predecessor), the related consolidated statements of operations, comprehensive loss, and cash flows for the periods from May 1, 2021 to December 31, 2021 (Successor period) and from January 1, 2021 to April 30, 2021 and for each of the years in the two-year period ended December 31, 2020 (Predecessor periods), and the related notes (collectively, the consolidated financial statements), and our report dated February 22, 2022 expressed an unqualified opinion on those consolidated financial statements.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

Definition and Limitations of Internal Control Over Financial Reporting

/s/ KPMG LLP

Houston, Texas

February 22, 2022

VALARIS LIMITED AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(in millions, except per share amounts)


	Successor		Predecessor
	Eight Months Ended December 31, 2021		Four Months Ended April 30, 2021		Year Ended December 31, 2020		Year Ended December 31, 2019
OPERATING REVENUES	$	835.0	$	397.4	$	1,427.2	$	2,053.2
OPERATING EXPENSES
Contract drilling (exclusive of depreciation)	728.7		343.8		1,470.4		1,807.8
Loss on impairment	—		756.5		3,646.2		104.0
Depreciation	66.1		159.6		540.8		609.7
General and administrative	58.2		30.7		214.6		188.9
Total operating expenses	853.0		1,290.6		5,872.0		2,710.4
OTHER OPERATING INCOME	—		—		118.1		—
EQUITY IN EARNINGS (LOSSES) OF ARO	6.1		3.1		(7.8)		(12.6)
OPERATING LOSS	(11.9)		(890.1)		(4,334.5)		(669.8)
OTHER INCOME (EXPENSE)
Interest income	28.5		3.6		19.7		28.1
Interest expense, net (Unrecognized contractual interest expense for debt subject to compromise was $132.9 million and $140.7 million for the four months ended April 30, 2021 and the year ended December 31, 2020, respectively)	(31.0)		(2.4)		(290.6)		(428.3)
Reorganization items, net	(15.5)		(3,584.6)		(527.6)		—
Other, net	38.1		25.9		16.0		1,006.2
	20.1		(3,557.5)		(782.5)		606.0
INCOME (LOSS) BEFORE INCOME TAXES	8.2		(4,447.6)		(5,117.0)		(63.8)
PROVISION (BENEFIT) FOR INCOME TAXES
Current income tax expense (benefit)	58.7		34.4		(153.7)		104.5
Deferred income tax expense (benefit)	(21.3)		(18.2)		(105.7)		23.9
	37.4		16.2		(259.4)		128.4


NET LOSS	(29.2)		(4,463.8)		(4,857.6)		(192.2)
NET (INCOME) LOSS ATTRIBUTABLE TO NONCONTROLLING INTERESTS	(3.8)		(3.2)		2.1		(5.8)
NET LOSS ATTRIBUTABLE TO VALARIS	$	(33.0)	$	(4,467.0)	$	(4,855.5)	$	(198.0)
LOSS PER SHARE - BASIC AND DILUTED	$	(0.44)	$	(22.38)	$	(24.42)	$	(1.14)
WEIGHTED-AVERAGE SHARES OUTSTANDING
Basic and Diluted	75.0		199.6		198.9		173.4

The accompanying notes are an integral part of these consolidated financial statements.

VALARIS LIMITED AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(in millions)


	Successor		Predecessor
	Eight Months Ended December 31, 2021		Four Months Ended April 30, 2021		Year Ended December 31, 2020		Year Ended December 31, 2019
NET LOSS	$	(29.2)	$	(4,463.8)	$	(4,857.6)	$	(192.2)
OTHER COMPREHENSIVE LOSS, NET
Net changes in pension and other postretirement plan assets and benefit obligations recognized in other comprehensive loss, net of income tax benefit of $5.9 million for the year ended December 31, 2019. No income tax benefit was recognized during the eight months ended December 31, 2021 (Successor), four months ended April 30, 2021 (Predecessor), and year ended December 31, 2020 (Predecessor).	(9.1)		0.1		(76.3)		(21.7)
Net change in fair value of derivatives	—		—		(5.4)		1.6
Amortization of settlement gain, net of income tax expense of $0.1 million for the year ended December 31, 2020	—		—		(0.2)		—
Reclassification of net (gains) losses on derivative instruments from other comprehensive loss into net loss	—		(5.6)		(11.6)		8.3
Other	—		—		(0.6)		(0.2)
NET OTHER COMPREHENSIVE LOSS	(9.1)		(5.5)		(94.1)		(12.0)
COMPREHENSIVE LOSS	(38.3)		(4,469.3)		(4,951.7)		(204.2)
COMPREHENSIVE (INCOME) LOSS ATTRIBUTABLE TO NONCONTROLLING INTERESTS	(3.8)		(3.2)		2.1		(5.8)
COMPREHENSIVE LOSS ATTRIBUTABLE TO VALARIS	$	(42.1)	$	(4,472.5)	$	(4,949.6)	$	(210.0)

The accompanying notes are an integral part of these consolidated financial statements.

VALARIS LIMITED AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(in millions, except share and par value amounts)


	Successor		Predecessor
	December 31, 2021		December 31, 2020
ASSETS
CURRENT ASSETS
Cash and cash equivalents	$	608.7	$	325.8

Restricted cash	35.9		11.4
Accounts receivable, net	444.2		449.2
Other current assets	117.8		386.5
Total current assets	1,206.6		1,172.9
PROPERTY AND EQUIPMENT, AT COST	957.0		13,209.3
Less accumulated depreciation	66.1		2,248.8
Property and equipment, net	890.9		10,960.5
LONG-TERM NOTES RECEIVABLE FROM ARO	249.1		442.7
INVESTMENT IN ARO	86.6		120.9
OTHER ASSETS	176.0		176.2
	$	2,609.2	$	12,873.2
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable - trade	$	225.8	$	176.4
Accrued liabilities and other	196.2		250.4

Total current liabilities	422.0		426.8
LONG-TERM DEBT	545.3		—
OTHER LIABILITIES	581.1		762.4
Total liabilities not subject to compromise	1,548.4		1,189.2
LIABILITIES SUBJECT TO COMPROMISE	—		7,313.7
COMMITMENTS AND CONTINGENCIES	0		0
VALARIS SHAREHOLDERS' EQUITY
Predecessor Class A ordinary shares, U.S. $0.40 par value, 206.1 million shares issued as of December 31, 2020	—		82.5
Predecessor Class B ordinary shares, £1 par value, 50,000 shares issued as of December 31, 2020	—		0.1
Successor common shares, $0.01 par value, 700 million shares authorized, 75 million shares issued as of December 31, 2021	0.8		—
Successor preference shares, $0.01 par value, 150 million shares authorized, 0 shares issued as of December 31, 2021	—		—
Successor stock warrants	16.4		—
Additional paid-in capital	1,083.0		8,639.9
Retained deficit	(33.0)		(4,183.8)
Accumulated other comprehensive loss	(9.1)		(87.9)
Predecessor Treasury shares, at cost, 6.6 million shares as of December 31, 2020	—		(76.2)
Total Valaris shareholders' equity	1,058.1		4,374.6
NONCONTROLLING INTERESTS	2.7		(4.3)
Total equity	1,060.8		4,370.3
	$	2,609.2	$	12,873.2

The accompanying notes are an integral part of these consolidated financial statements.

VALARIS LIMITED AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in millions)


	Successor		Predecessor
	Eight Months Ended December 31, 2021		Four Months Ended April 30, 2021		Year Ended December 31, 2020		Year Ended December 31, 2019
OPERATING ACTIVITIES
Net loss	$	(29.2)	$	(4,463.8)	$	(4,857.6)	$	(192.2)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation expense	66.1		159.6		540.8		609.7
Deferred income tax expense (benefit)	(21.3)		(18.2)		(105.7)		23.9
Gain on asset disposals	(21.2)		(6.0)		(11.8)		(1.8)
Accretion of discount on shareholders note	(20.8)		—		—		—
Net periodic pension and retiree medical income	(8.7)		(5.4)		(14.6)		(4.3)
Equity in losses (earnings) of ARO	(6.1)		(3.1)		7.8		12.6
Share-based compensation expense	4.3		4.8		21.4		37.3
Amortization, net	2.3		(4.8)		6.2		(16.8)
Debt discounts and other	0.5		—		36.8		31.5
Loss on Impairment	—		756.5		3,646.2		104.0
Adjustment to (gain on) bargain purchase	—		—		6.3		(637.0)
Gain on debt extinguishment	—		—		(3.1)		(194.1)
Debtor in possession financing fees and payments on Backstop Commitment Agreement	—		—		40.0		—
Non-cash reorganization items, net	—		3,487.3		436.4		—
Other	0.3		7.3		33.3		16.0
Changes in operating assets and liabilities, net of acquisition	10.3		68.5		(22.0)		(52.5)
Contributions to pension plans and other post-retirement benefits	(2.7)		(22.5)		(12.1)		(13.2)
Net cash used in operating activities	(26.2)		(39.8)		(251.7)		(276.9)
INVESTING ACTIVITIES
Additions to property and equipment	(50.2)		(8.7)		(93.8)		(227.0)

Net proceeds from disposition of assets	25.1		30.1		51.8		17.7
Rowan cash acquired	—		—		—		931.9
Maturities of short-term investments	—		—		—		474.0
Purchases of short-term investments	—		—		—		(145.0)

Net cash provided by (used in) investing activities	(25.1)		21.4		(42.0)		1,051.6
FINANCING ACTIVITIES
Issuance of first lien notes	—		520.0		—		—
Payments to Predecessor creditors	—		(129.9)		—		—
Borrowings on credit facility	—		—		596.0		215.0
Debtor in possession financing fees and payments on Backstop Commitment Agreement	—		—		(40.0)		—
Repayments of credit facility borrowings	—		—		(15.0)		(215.0)
Reduction of long-term borrowings	—		—		(9.7)		(928.1)
Purchase of noncontrolling interest	—		—		(7.2)		—
Debt solicitation fees	—		—		—		(9.5)
Cash dividends paid	—		—		—		(4.5)



Other	—		(1.4)		(1.9)		(10.2)
Net cash provided by (used in) financing activities	—		388.7		522.2		(952.3)

Effect of exchange rate changes on cash and cash equivalents	(0.1)		(0.1)		0.1		(0.3)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS AND RESTRICTED CASH	(51.4)		370.2		228.6		(177.9)
CASH AND CASH EQUIVALENTS AND RESTRICTED CASH, BEGINNING OF YEAR	696.0		325.8		97.2		275.1
CASH AND CASH EQUIVALENTS AND RESTRICTED CASH, END OF YEAR	$	644.6	$	696.0	$	325.8	$	97.2

The accompanying notes are an integral part of these consolidated financial statements.

VALARIS LIMITED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. DESCRIPTION OF THE BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Business

We are a leading provider of offshore contract drilling services to the international oil and gas industry. We currently own an offshore drilling rig fleet of 56 rigs, with drilling operations in almost every major offshore market across 6 continents. Our rig fleet includes 11 drillships, 4 dynamically positioned semisubmersible rigs, 1 moored semisubmersible rig, 40 jackup rigs and a 50% equity interest in Saudi Aramco Rowan Offshore Drilling Company ("ARO"), our 50/50 joint venture with Saudi Aramco, which owns an additional 7 rigs. We operate the world's largest fleet amongst competitive rigs, including one of the newest ultra-deepwater fleets in the industry and a leading premium jackup fleet.

Our customers include many of the leading national and international oil companies, in addition to many independent operators. We are among the most geographically diverse offshore drilling companies, with current operations spanning 14 countries. The markets in which we operate include the Gulf of Mexico, South America, North Sea, the Middle East, Africa, Australia and Southeast Asia.

Chapter 11 Cases

On August 19, 2020 (the “Petition Date”), Valaris plc (“Legacy Valaris” or “Predecessor”) and certain of its direct and indirect subsidiaries (collectively, the “Debtors”) filed voluntary petitions for reorganization under chapter 11 of the United States Bankruptcy Code ("Bankruptcy Code") in the Bankruptcy Court for the Southern District of Texas (the "Bankruptcy Court") The Debtors obtained joint administration of their chapter 11 cases under the caption In re Valaris plc, et al., Case No. 20-34114 (MI) (the “Chapter 11 Cases”).

In connection with the Chapter 11 Cases, on and prior to April 30, 2021 (the "Effective Date"), Legacy Valaris effectuated certain restructuring transactions, pursuant to which the successor company, Valaris, was formed and, through a series of transactions, Legacy Valaris transferred to a subsidiary of Valaris substantially all of the subsidiaries, and other assets, of Legacy Valaris.

References to the financial position and results of operations of the "Successor" or "Successor Company" relate to the financial position and results of operations of the Company after the Effective Date. References to the financial position and results of operations of the "Predecessor" or "Predecessor Company" refer to the financial position and results of operations of Legacy Valaris on and prior to the Effective Date. References to the “Company,” “we,” “us” or “our” in this Annual Report are to Valaris Limited, together with its consolidated subsidiaries, when referring to periods following the Effective Date, and to Legacy Valaris, together with its consolidated subsidiaries, when referring to periods prior to and including Effective Date.

See“Note 2 – Chapter 11 Proceedings” for additional details regarding the Chapter 11 Cases.

Fresh Start Accounting

On the Effective Date, the Debtors emerged from the Chapter 11 Cases. Upon emergence from the Chapter 11 Cases, we qualified for and adopted fresh start accounting. The application of fresh start accounting resulted in a new basis of accounting, and the Company became a new entity for financial reporting purposes. Accordingly, our financial statements and notes after the Effective Date are not comparable to our financial statements and notes on and prior to that date. Furthermore, the consolidated financial statements and notes have been presented with a black line division to delineate the lack of comparability between the Predecessor and Successor.

See “Note 2 – Chapter 11 Proceedings” and “Note 3 - Fresh Start Accounting” for additional details regarding the Chapter 11 Cases and fresh start accounting.

Changes in Accounting Policies

Upon emergence from bankruptcy, we elected to change our accounting policies related to property and equipment as well as materials and supplies.

Prior to emergence from bankruptcy, we recorded our drilling rigs as a single asset with a useful life ascribed by the expected useful life of that asset. Upon emergence, we have identified the significant components of our drilling rigs and ascribed useful lives based on the expected time until the next required overhaul or the end of the expected economic lives of the components.

Historically, we recognized materials and supplies on the balance sheet when purchased and subsequently expensed items when consumed. Following emergence, materials and supplies will be expensed as a period cost when received. Additionally, a customer arrangement provides that we take title to their materials and supplies for the duration of the contract and return or pay cash for them at the termination of the contract. Together with our policy change on materials and supplies, we elected to record these assets and the obligation to our customer on a net basis as opposed to a gross basis.

Accounting Policies

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of Valaris Limited, those of our wholly-owned subsidiaries and entities in which we hold a controlling financial interest. All intercompany accounts and transactions have been eliminated. Investments in operating entities in which we have the ability to exercise significant influence, but where we do not control operating and financial policies are accounted for using the equity method. Significant influence generally exists if we have an ownership interest representing between 20% and 50% of the voting stock of the investee. We account for our interest in ARO using the equity method of accounting and only recognize our portion of equity in earnings in our consolidated financial statements. ARO is a variable interest entity; however, we are not the primary beneficiary and therefore do not consolidate ARO.

Reclassification

Certain previously reported amounts have been reclassified to conform to the current year presentation.

Pervasiveness of Estimates

Foreign Currency Remeasurement and Translation

Our functional currency is the U.S. dollar. As is customary in the oil and gas industry, a majority of our revenues and expenses are denominated in U.S. dollars; however, a portion of the revenues earned and expenses incurred by certain of our subsidiaries are denominated in currencies other than the U.S. dollar. These transactions are remeasured in U.S. dollars based on a combination of both current and historical exchange rates. Most transaction gains and losses, including certain gains and losses on our prior derivative instruments, are included in Other, net, in our Consolidated Statements of Operations. Certain gains and losses from the translation of foreign currency balances of our non-U.S. dollar functional currency subsidiaries are included in Accumulated other comprehensive income on our Consolidated Balance Sheet. Net foreign currency exchange gains were $8.1 million and $13.4 million, and were included in Other, net, in our Consolidated Statements of Operations for the eight months ended December 31, 2021 (Successor) and four months ended April 30, 2021 (Predecessor), respectively. Net foreign currency exchange losses, inclusive of offsetting fair value derivatives were $11.0 million and $7.4 million, and were included in Other, net, in our Consolidated Statements of Operations for the year ended December 31, 2020 (Predecessor) and 2019 (Predecessor), respectively.

Cash Equivalents and Short-Term Investments

There were no short-term investments as of December 31, 2021 (Successor) and 2020 (Predecessor). Cash flows from purchases and maturities of short-term investments were classified as investing activities in our Consolidated Statements of Cash Flows for the year ended December 31, 2019. To mitigate our credit risk, our investments in time deposits have historically been diversified across multiple, high-quality financial institutions.

Property and Equipment

All costs incurred in connection with the acquisition, construction, major enhancement and improvement of assets are capitalized, including allocations of interest incurred during periods that our drilling rigs are under construction or undergoing major enhancements and improvements. Costs incurred to place an asset into service are capitalized, including costs related to the initial mobilization of a newbuild drilling rig. Repair and maintenance costs are charged to contract drilling expense in the period in which they are incurred. Upon the sale or retirement of assets, the related cost and accumulated depreciation are removed from the balance sheet, and the resulting gain or loss is included in Other, net in our Consolidated Statements of Operations.

See "Changes in Accounting Policies" above for a discussion of the change in our accounting policy for property and equipment upon emergence from bankruptcy. Our property and equipment is depreciated on a straight-line basis, after allowing for salvage values, over the estimated useful lives of our assets. Drilling rigs and related equipment are depreciated over estimated useful lives ranging from five to 35 years. Buildings and improvements are depreciated over estimated useful lives ranging from 10 to 30 years. Other equipment, including computer and communications hardware and software, is depreciated over estimated useful lives ranging from two to six years.

We evaluate the carrying value of our property and equipment, primarily our drilling rigs, on a quarterly basis to identify events or changes in circumstances ("triggering events") that indicate that the carrying value of such rigs may not be recoverable. For property and equipment used in our operations, recoverability generally is determined by comparing the carrying value of an asset to the expected undiscounted future cash flows of the asset. If the carrying value of an asset is not recoverable, the amount of impairment loss is measured as the difference between the carrying value of the asset and its estimated fair value. Property and equipment held-for-sale is recorded at the lower of net book value or fair value less cost to sell.

We recorded pre-tax, non-cash impairment losses related to long-lived assets of $756.5 million, $3.6 billion and $104.0 million, in the four months ended April 30, 2021 (Predecessor), the year ended December 31, 2020 (Predecessor) and the year ended December 31, 2019 (Predecessor), respectively. See "Note 8 - Property and Equipment" for additional information on our impairment charges.

Operating Revenues and Expenses

See "Note 4 - Revenue from Contracts with Customers" for information on our accounting policies for revenue recognition and certain operating costs that are deferred and amortized over future periods.

Derivative Instruments

We did not have any open derivative instruments as of December 31, 2021 (Successor) or 2020 (Predecessor). However, we have historically used derivatives to reduce our exposure to various market risks, primarily foreign currency exchange rate risk. See "Note 10 - Derivative Instruments" for additional information on how and why we used derivatives and the impact of the Chapter 11 Cases.

Derivatives are recorded on our Consolidated Balance Sheet at fair value. Derivatives subject to legally enforceable master netting agreements are not offset on our Consolidated Balance Sheet. Accounting for the gains and losses resulting from changes in the fair value of derivatives depends on the use of the derivative and whether it qualifies for hedge accounting. Derivatives qualify for hedge accounting when they are formally designated as hedges and are effective in reducing the risk exposure that they are designated to hedge.

Gains and losses on a cash flow hedge, or a portion of a cash flow hedge, that no longer qualifies as effective due to an unanticipated change in the forecasted transaction are recognized currently in earnings and included in Other, net, in our Consolidated Statements of Operations based on the change in the fair value of the derivative. When a forecasted transaction becomes probable of not occurring, gains and losses on the derivative previously recorded in AOCI are reclassified currently into earnings and included in Other, net, in our Consolidated Statements of Operations.

Historically, we would enter into derivatives that hedge the fair value of recognized assets or liabilities but do not designate such derivatives as hedges or the derivatives otherwise do not qualify for hedge accounting. In these situations, a natural hedging relationship generally exists where changes in the fair value of the derivatives offset changes in the fair value of the underlying hedged items. Changes in the fair value of these derivatives are recognized currently in earnings in other, net, in our Consolidated Statements of Operations.

Derivatives with asset fair values are reported in other current assets or other assets, net, on our Consolidated Balance Sheet depending on maturity date. Derivatives with liability fair values are reported in accrued liabilities and other, or other liabilities on our Consolidated Balance Sheet depending on maturity date.

Income Taxes

100

Deferred ~~Certification~~tax assets and liabilities are recognized for the anticipated future tax effects of temporary differences between the financial statement basis and the tax basis of our assets and liabilities using the enacted tax rates in effect at year-end. A valuation allowance for deferred tax assets is recorded when it is more-likely-than-not that the benefit from the deferred tax asset will not be realized. We do not offset deferred tax assets and deferred tax liabilities attributable to different tax paying jurisdictions.

We operate in certain jurisdictions where tax laws relating to the offshore drilling industry are not well developed and change frequently. Furthermore, we may enter into transactions with affiliates or employ other tax planning strategies that generally are subject to complex tax regulations. As a result of the foregoing, the tax liabilities and assets we recognize in our financial statements may differ from the tax positions taken, or expected to be taken, in our tax returns. Our tax positions are evaluated for recognition using a more-likely-than-not threshold, and those tax positions requiring recognition are measured as the largest amount of tax benefit that is greater than 50% likely of being realized upon effective settlement with a taxing authority that has full knowledge of all relevant information. Interest and penalties relating to income taxes are included in Current income tax expense in our Consolidated Statements of Operations.

101

Share-Based Compensation

We sponsor share-based compensation plans that provide equity compensation to our key employees, officers and non-employee directors. Our Management Incentive Plan (the “MIP”) allows our Board of Directors to authorize share grants to be settled in cash, shares or a combination of shares and cash. Compensation expense for time-based share awards to be settled in shares is measured at fair value on the date of grant and recognized on a straight-line basis over the requisite service period (usually the vesting period). Compensation expense for performance awards is recognized over the requisite service period using the accelerated method and is reduced for forfeited awards in the period in which the forfeitures occur. For our performance awards that cliff vest and require the employee to render service through the vesting date, even though attainment of performance objectives might be earlier, our expense under the accelerated method would be a ratable expense over the vesting period. Equity settled performance awards generally vest at the end of a three-year measurement period based on attainment of performance goals. The estimated probable outcome of attainment of the specified performance goals is based primarily on relative performance over the requisite performance period. Any subsequent changes in this estimate as it relates to performance objectives are recognized as a cumulative adjustment to compensation cost in the period in which the change in estimate occurs, except in the case of objectives based on a market condition, such as our stock price. Compensation cost for awards based on a market performance objective is recognized as long as the requisite service period is completed and will not be reversed even if the market-based objective is never satisfied. Compensation expense for share awards to be settled in cash are recognized as liabilities and remeasured each quarter with a cumulative adjustment to compensation cost during the period based on changes in our share price. Any adjustments to the compensation cost recognized in our Consolidated Statements of Operations for awards that are forfeited are recognized in the period in which the forfeitures occur. See "Note 1 2 - Share Based Compensation" for additional information on our share-based compensation.

Pension and Other Post-retirement benefit plans

Fair Value Measurements

We measure certain of our assets and liabilities based on a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy assigns the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities ("Level 1") and the lowest priority to unobservable inputs ("Level 3"). Level 2 measurements represent inputs that are observable for similar assets or liabilities, either directly or indirectly, other than quoted prices included within Level 1. See "Note 7 - Fair Value Measurements" for additional information on the fair value measurement of certain of our assets and liabilities.

102

Noncontrolling Interests

Third-parties hold a noncontrolling ownership interest in certain of our non-U.S. subsidiaries. Noncontrolling interests are classified as equity on our Consolidated Balance Sheet, and net income attributable to noncontrolling interests is presented separately in our Consolidated Statements of Operations. For the eight months ended December 31, 2021 (Successor), the four months ended April 30, 2021 (Predecessor), the year ended December 31, 2020 (Predecessor) and the year ended December 31, 2019 (Predecessor), all income attributable to noncontrolling interest was from continuing operations.

Earnings Per Share

Basic income (loss) per share is computed by dividing net income (loss) available to common shareholders by the weighted-average number of common shares outstanding during the period. Basic and diluted earnings per share ("EPS") for the Predecessor was calculated in accordance with the two-class method. Predecessor net loss attributable to Legacy Valaris used in our computations of basic and diluted EPS was adjusted to exclude net income allocated to non-vested shares granted to our employees and non-employee directors. Weighted-average shares outstanding used in our computation of diluted EPS is calculated using the treasury stock method and for the Successor includes the effect of all potentially dilutive warrants, restricted stock unit awards and performance stock unit awards and for the Predecessor includes the effect of all potentially dilutive stock options and excludes non-vested shares. In the eight months ended December 31, 2021 (Successor), the four months ended April 30, 2021 (Predecessor), the year ended December 31, 2020 (Predecessor) and the year ended December 31, 2019 (Predecessor), our potentially dilutive instruments were not included in the computation of diluted EPS as the effect of including these shares in the calculation would have been anti-dilutive.

The following table is a reconciliation of loss from continuing operations attributable to our shares, or Legacy Valaris shares in the case of the Predecessor periods, used in our basic and diluted EPS computations (in millions).


	Successor		Predecessor
	Eight Months Ended December 31, 2021		Four Months Ended April 30, 2021		Year Ended December 31, 2020		Year Ended December 31, 2019
Loss from continuing operations attributable to Valaris	$	(33.0)	$	(4,467.0)	$	(4,855.5)	$	(198.0)
Income from continuing operations allocated to non-vested share awards (1)	—		—		—		(0.1)
Loss from continuing operations attributable to Valaris shares	$	(33.0)	$	(4,467.0)	$	(4,855.5)	$	(198.1)

(1) Losses are not allocated to non-vested share awards. Due to the net loss position, potentially dilutive share awards are excluded from the computation of diluted EPS.

Anti-dilutive share awards totaling 600,000, 300,000, 400,000 and 300,000 for the eight months ended December 31, 2021 (Successor), the four months ended April 30, 2021 (Predecessor), the year ended December 31, 2020 (Predecessor) and the year ended December 31, 2019 (Predecessor), respectively, were excluded from the computation of diluted EPS.

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The Predecessor previously had the 2024 Convertible Notes (as defined and more fully described in Note 9 "Debt") for which we had the option to settle in cash, shares or a combination thereof for the aggregate amount due upon conversion. On the Effective Date, pursuant to the plan of reorganization, all outstanding obligations under the 2024 Convertible Notes, were cancelled and the holders thereunder received the treatment as set forth in the plan of reorganization. However, if the Legacy Valaris average share price had exceeded the exchange price during a respective predecessor reporting period, an assumed number of shares required to settle the conversion obligation in excess of the principal amount would have been included in our denominator for the computation of diluted EPS using the treasury stock method. The Legacy Valaris average share price did not exceed the exchange price during the four months ended April 30, 2021 (Predecessor) or the years ended December 31, 2020 (Predecessor) or 2019 (Predecessor).

Cancellation of Predecessor Equity and Issuance of Warrants

New Accounting Pronouncements

Recently adopted accounting pronouncements

Income Taxes - In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes ("Update 2019-12"), which removes certain exceptions for investments, intraperiod allocations and interim tax calculations and adds guidance to reduce complexity in accounting for income taxes. We were required to adopt the amended guidance in annual and interim periods beginning after December 15, 2020. The various amendments in Update 2019-12 are applied on a retrospective basis, modified retrospective basis and prospective basis, depending on the amendment. We adopted Update 2019-12 effective January 1, 2021 with no material impact to our financial statements upon adoption.

Accounting pronouncements to be adopted

Reference Rate Reform - In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting ("Update 2020-04"), which provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships and other transactions affected by reference rate reform if certain criteria are met. The amendments in Update 2020-04 apply only to contracts, hedging relationships and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. The expedients and exceptions provided by the amendments do not apply to contract modifications made and hedging relationships entered into or evaluated after December 31, 2022, except for hedging relationships existing as of December 31, 2022, for which an entity has elected certain optional expedients and that are retained through the end of the hedging relationship. The provisions in Update 2020-04 are effective upon issuance and can be applied prospectively through December 31, 2022. Our notes receivable with ARO, from which we generate interest income on a LIBOR-based rate, are impacted by the application of this standard. As the notes bear interest on the LIBOR rate determined at the end of the preceding year, the rate governing our interest income in 2022 has already been determined. We expect to be able to modify the terms of our notes receivable to a comparable interest rate before the applicable LIBOR rate is no longer available and as such, do not expect this standard to have a material impact to our consolidated financial statements.

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Leases - In July 2021, the FASB issued ASU 2021-05, “Leases (Topic 842); Lessors - Certain Leases with Variable Lease Payments”, (“Update 2021-05”) which requires a lessor to classify a lease with entirely or partially variable payments that do not depend on an index or rate as an operating lease if another classification (i.e. sales-type or direct financing) would trigger a day-one loss. Update 2021-05 is effective for fiscal years beginning after December 15, 2021, with early adoption permitted. We are in the process of evaluating the impact this amendment will have on our consolidated financial statements.

Business Combinations - In October 2021, the FASB issued ASU 2021-08, “Accounting for Contracts Assets and Contract Liabilities from Contracts with Customers” (“Update 2021-08”). ASU 2021-08 requires an entity (acquirer) to recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with Topic 606 and provides practical expedients for acquirers when recognizing and measuring acquired contract assets and contract liabilities from revenue contracts in a business combination. The amendments also apply to contract assets and contract liabilities from other contracts to which the provisions of Topic 606 apply, such as contract liabilities for the sale of nonfinancial assets within the scope of Subtopic 610-20, Other Income - Gains and Losses from the Derecognition of Nonfinancial Assets. The FASB issued the update to improve the accounting for acquired revenue contracts with customers in a business combination. The ASU’s amendments are effective for fiscal years beginning after December 15, 2022, and interim periods within those fiscal years, with early adoption permitted. We will adopt Update 2021-08 in the period required and will apply it to any business combination completed subsequent to the adoption.

2. CHAPTER 11 PROCEEDINGS

Chapter 11 Cases and Emergence from Chapter 11

Below is a summary of the terms of the plan of reorganization:

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•The Legacy Valaris revolving credit facility (the "Revolving Credit Facility") was terminated and the holders thereunder received the treatment as set forth in the plan of reorganization;

•Holders of general unsecured claims are entitled to receive payment in full within ninety days after the later of (a) the Effective Date and (b) the date such claim comes due;

•375,000 Common Shares were issued and $5.0 million was paid to Daewoo Shipbuilding & Marine Engineering Co., Ltd (the "Shipyard");

•All equity-based awards of Legacy Valaris that were outstanding were cancelled;

•On the Effective Date, Valaris Limited entered into a registration rights agreement with certain parties who received Common Shares;

•On the Effective Date, Valaris Limited entered into a registration rights agreement with certain parties who received First Lien Notes; and

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Management Incentive Plan

Liabilities Subject to Compromise

Liabilities subject to compromise at December 31, 2020 (Predecessor) consisted of the following (in millions):


6.875% Senior notes due 2020	$	122.9
4.70% Senior notes due 2021	100.7
4.875% Senior notes due 2022	620.8
3.00% Exchangeable senior notes due 2024	849.5
4.50% Senior notes due 2024	303.4
4.75% Senior notes due 2024	318.6
8.00% Senior notes due 2024	292.3
5.20% Senior notes due 2025	333.7
7.375% Senior notes due 2025	360.8
7.75% Senior notes due 2026	1,000.0
7.20% Debentures due 2027	112.1
7.875% Senior notes due 2040	300.0
5.40% Senior notes due 2042	400.0
5.75% Senior notes due 2044	1,000.5
5.85% Senior notes due 2044	400.0
Amounts drawn under the Revolving Credit Facility	581.0
Accrued Interest on Senior Notes and Revolving Credit Facility	203.5
Rig holding costs(1)	13.9
Total liabilities subject to compromise	$	7,313.7

(1) Represents the holding costs incurred to maintain VALARIS DS-13 and VALARIS DS-14 in the shipyard.

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Pre-petition Charges

Reorganization Items

The components of reorganization items, net were as follows (in millions):


	Successor		Predecessor
	Eight Months Ended December 31, 2021		Four Months Ended April 30, 2021		Year Ended December 31, 2020

DIP facility fees	$	—	$	—	$	20.0
Professional fees	17.2		93.4		66.8
Contract items	(1.7)		3.9		4.4

Reorganization items (fees)	15.5		97.3		91.2

Write-off of unamortized debt discounts, premiums and issuance costs	—		—		447.9
Contract items	—		0.5		(11.5)
Backstop premium	—		30.0		—
Gain on settlement of liabilities subject to compromise	—		(6,139.0)		—
Issuance of Common Shares for backstop premium	—		29.1		—
Issuance of Common Shares to the Shipyard	—		5.4		—
Write-off of unrecognized share-based compensation expense	—		16.0		—
Impact of newbuild contract amendments	—		350.7		—
Loss on fresh start adjustments	—		9,194.6		—
Reorganization items (non-cash)	—		3,487.3		436.4

Total reorganization items, net	$	15.5	$	3,584.6	$	527.6

Reorganization items (fees) unpaid	$	0.8	$	38.3	$	61.2
Reorganization items (fees) paid	$	14.7	$	59.0	$	30.0

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3. FRESH START ACCOUNTING

Applicability of Fresh Start Accounting

Reorganization Value

The following table reconciles the enterprise value to the estimated fair value of Successor Common Shares as of the Effective Date (in millions, except per share value):


	April 30, 2021
Enterprise Value	$	1,860.0
Plus: Cash and cash equivalents	607.6
Less: Fair value of debt	(544.8)
Less: Warrants	(16.4)
Less: Noncontrolling interest	1.1
Less: Pension and other post retirement benefits liabilities	(189.0)
Less: Adjustments not contemplated in Enterprise Value	(639.0)
Fair value of Successor Common Shares	$	1,079.5
Shares issued upon emergence	75.0
Per share value	$	14.39

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The following table reconciles the enterprise value to the reorganization value as of the Effective Date (in millions):


	April 30, 2021
Enterprise Value	$	1,860.0
Plus: Cash and cash equivalents	607.6
Plus: Non-interest bearing current liabilities	346.0
Less: Adjustments not contemplated in Enterprise Value	(218.0)
Reorganization value of Successor assets	$	2,595.6

Valuation Process

Property, Plant and Equipment

The estimated fair value of our property and equipment includes an adjustment to reconcile to our reorganization value.

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Notes Receivable from ARO

Investment in ARO

Options to Purchase Newbuild Rigs

First Lien Notes

Pensions

Warrants

Condensed Consolidated Balance Sheet

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	As of April 30, 2021
	Predecessor		Reorganization Adjustments			Fresh Start Accounting Adjustments			Successor

ASSETS
CURRENT ASSETS
Cash and cash equivalents	$	280.2	$	327.4	(a)	$	—		$	607.6
Restricted cash	45.7		42.7		(b)	—			88.4
Accounts receivable, net	425.9		—			—			425.9
Other current assets	370.1		1.5		(c)	(281.1)		(o)	90.5
Total current assets	1,121.9		371.6			(281.1)			1,212.4
PROPERTY AND EQUIPMENT, NET	10,026.4		(417.6)		(d)	(8,699.7)		(p)	909.1
LONG-TERM NOTES RECEIVABLE FROM ARO	442.7		—			(214.4)		(q)	228.3
INVESTMENT IN ARO	123.9		—			(43.4)		(r)	80.5
OTHER ASSETS	166.4		(10.0)		(e)	8.9		(s)	165.3
	$	11,881.3	$	(56.0)		$	(9,229.7)		$	2,595.6
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable - trade	$	161.5	$	13.1	(f)	$	(.5)	(t)	$	174.1
Accrued liabilities and other	290.7		(12.4)		(g)	(61.8)		(u)	216.5
Total current liabilities	452.2		0.7			(62.3)			390.6
LONG-TERM DEBT	—		544.8		(h)	—			544.8
OTHER LIABILITIES	706.2		(55.2)		(i)	(85.6)		(v)	565.4
Total liabilities not subject to compromise	1,158.4		490.3			(147.9)			1,500.8
LIABILITIES SUBJECT TO COMPROMISE	7,313.7		(7,313.7)		(j)	—			—
COMMITMENTS AND CONTINGENCIES
VALARIS SHAREHOLDERS' EQUITY
Predecessor Class A ordinary shares	82.5		(82.5)		(k)	—			—
Predecessor Class B ordinary shares	0.1		(0.1)		(k)	—			—
Successor common shares	—		0.8		(l)	—			0.8
Successor stock warrants	—		16.4		(m)	—			16.4
Predecessor additional paid-in capital	8,644.0		(8,644.0)		(k)	—			—
Successor additional paid-in capital	—		1,078.7		(l)	—			1,078.7
Retained deficit	(5,147.4)		14,322.6		(n)	(9,175.2)		(w)	—
Accumulated other comprehensive loss	(93.4)		—			93.4		(x)	—
Predecessor treasury shares	(75.5)		75.5		(k)	—			—
Total Valaris shareholders' equity	3,410.3		6,767.4			(9,081.8)			1,095.9
NONCONTROLLING INTERESTS	(1.1)		—			—			(1.1)
Total equity	3,409.2		6,767.4			(9,081.8)			1,094.8
	$	11,881.3	$	(56.0)		$	(9,229.7)		$	2,595.6

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Reorganization Adjustments

(a) Cash

Represents the reorganization adjustments (in millions):


Receipt of cash for First Lien Notes	$	500.0
Loan proceeds from backstop lenders	20.0
Funds received for liquidation of rabbi trust related to certain employee benefits	17.6
Payments to Predecessor creditors	(129.9)
Transfer of funds for payment of certain professional fees to escrow account	(42.7)
Payment for certain professional services fees	(29.0)
Various other	(8.6)
	$	327.4

(b) Restricted cash

Reflects certain prepayments incurred upon emergence.

(d) Property and Equipment, net

(e) Other assets

Represents the reorganization adjustments (in millions):


Liquidation of rabbi trust related to certain employee benefits	$	(17.6)
Elimination of right-of-use asset associated with Newbuild Rigs	(5.5)
Fair value of options to purchase Newbuild Rigs	13.1
	$	(10.0)

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(f) Accounts payable - trade

Reflects the following reorganization adjustments (in millions):


Professional fees incurred upon emergence	$	26.1
Payment of professional fees incurred prior to emergence	(12.6)
Payment of certain accounts payable incurred prior to emergence	(0.4)
	$	13.1

(g) Accrued liabilities and other

Reflects the following reorganization adjustments (in millions):


Elimination of lease liabilities associated with Newbuild Rigs	$	(5.0)
Elimination of accrued post-petition holding costs associated with Newbuild Rigs	(4.1)
Payment of certain accrued liabilities incurred prior to emergence	(3.3)
	$	(12.4)

(h) Long-term debt

Reflects the reorganization adjustment to record the issuance of the $550.0 million aggregate principal amount of First Lien Notes and debt issuance costs of $5.2 million.

(i) Other liabilities

Reflects the following reorganization adjustments (in millions):


Elimination of construction contract intangible liabilities associated with Newbuild Rigs	$	(49.9)
Elimination of accrued post-petition holding costs associated with Newbuild Rigs	(4.7)
Elimination of lease liabilities associated with Newbuild Rigs	(0.6)
	$	(55.2)

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We have eliminated the historical lease liability associated with the berthing locations of VALARIS DS-13 and VALARIS DS-14 and accrued post-petition holding costs as described in (g) above.

(j) Liabilities subject to compromise

Reflects the following reorganization adjustments (in millions):


Settlement of liabilities subject to compromise	$	7,313.7
Issuance of common stock to Predecessor creditors	(721.0)
Issuance of common stock to backstop parties	(323.8)
Payments to Predecessor creditors	(129.9)
Gain on settlement of liabilities subject to compromise	$	6,139.0

(k) Predecessor ordinary shares, additional paid-in capital and treasury shares

Represents the cancellation of the Predecessor's ordinary shares of $82.6 million, additional paid-in capital of $8,644.0 million and treasury stock of $75.5 million.

(l) Successor common shares and additional paid-in capital

Represents par value of 75 million new Common Shares of $0.8 million and capital in excess of par value of $1,078.7 million.

(m) Successor stock warrants

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(n) Retained deficit

Represents the reorganization adjustments to total equity as follows (in millions):


Gain on settlement of liabilities subject to compromise	$	(6,139.0)
Issuance of Common Shares for backstop premium	29.1
Issuance of Common Shares to the Shipyard	5.4
Write-off of unrecognized share-based compensation expense	16.0
Professional fees and success fees	35.9
Backstop premium	30.0
Impact of newbuild contract amendments	350.7
Reorganization items, net	(5,671.9)
Cancellation of Predecessor common shares	(82.6)
Cancellation of Predecessor treasury shares	75.5
Cancellation of Predecessor additional paid in capital	(7,856.4)
Cancellation of equity component of Predecessor convertible notes	(220.0)
Cancellation of Predecessor cash and equity compensation plans	(583.6)
Fair value of Warrants	16.4
	$	(14,322.6)

Fresh Start Adjustments

(o) Other current assets

Reflects the fresh start adjustments to record the estimated fair value of other current assets as follows (in millions):


Elimination of materials and supplies	$	(260.8)
Elimination of historical deferred contract drilling expenses	(20.3)
	$	(281.1)

Primarily reflects the fresh start adjustment to eliminate the historical balance for materials and supplies as the result of a change in accounting policies upon emergence.

We incurred for mobilization and contract preparation prior to the commencement of drilling services are deferred and subsequently amortized over the term of the related drilling contract. Additionally, we must obtain certifications from various regulatory bodies in order to operate our drilling rigs and must maintain such certifications through periodic inspections and surveys. The costs incurred in connection with maintaining such certifications, including inspections, tests, surveys and drydock, as well as remedial structural work and other compliance costs, are deferred and amortized on a straight-line basis over the corresponding certification periods. ~~Deferred regulatory certification~~These deferred costs have no future economic benefit and ~~compliance costs were included~~are eliminated from the fresh start financial statements.

(p) Property and equipment, net

Reflects the fresh start adjustments to historical amounts to record the estimated fair value of property and equipment.

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(q) Long-term notes receivable from ARO

(r) Investment in ARO

Reflects the fresh start adjustment to record the estimated fair value of the equity investment in ARO.

(s) Other assets

Reflects the fresh start adjustments to record the estimated fair value of other ~~current~~assets as follows (in millions):


Deferred tax impacts of certain fresh start adjustments	$	21.1
Fair value of contracts with customers	8.5
Fair value adjustments to right-of-use assets	0.4
Elimination of historical deferred contract drilling expenses	(16.5)
Elimination of other deferred costs	(4.6)
	$	8.9

The fresh start adjustments to eliminate other deferred costs reflect non-operational deferred costs that have no future economic benefit.

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(t) Accounts payable - trade

(u) Accrued liabilities and other

Reflects the fresh start adjustments to record the estimated fair value of current liabilities as follows (in millions):


Elimination of customer payable balance	$	(36.8)
Elimination of historical deferred revenues	(25.9)
Fair value of contracts with customers	0.5
Fair value adjustment to lease liabilities	0.4
	$	(61.8)

The fresh start adjustment to eliminate the customer payable balance is related to the change in accounting policy to present the balance on a net basis.

The fresh start adjustment to lease liabilities reflects the remeasuring of our operating leases as of the Effective Date.

(v) Other liabilities

Reflects the fresh start adjustments to record the estimated fair value of other liabilities as follows (in millions):


Adjustment to fair value of pension and other post-retirement plan liabilities	$	(82.7)
Elimination of historical deferred revenue	(5.9)
Deferred tax impacts of certain fresh start adjustments	1.7
Fair value adjustments to lease liabilities	1.1
Fair value adjustments to other liabilities	0.2
	$	(85.6)

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The fresh start adjustment to eliminate deferred revenues reflects the noncurrent portion of deferred revenues described in (u) above.

The fresh start adjustment to lease liabilities reflects the remeasuring of our operating leases as of the Effective Date.

(w) Retained Deficit

Reflects the fresh start adjustments to retained deficit as follows (in millions):


Fair value adjustments to prepaid and other current assets	$	(281.1)
Fair value adjustments to property	(8,699.7)
Fair value of intangible assets	8.5
Fair value adjustment to investment in ARO	(43.4)
Fair value adjustment to note receivable from ARO	(214.4)
Fair value adjustments to other assets	(20.7)
Fair value adjustments to other current liability	62.8
Fair value of intangible liabilities	(0.5)
Fair value adjustment to other liabilities	87.3
Elimination of Predecessor accumulated other comprehensive loss	(93.4)
Total fresh start adjustments included in reorganization items, net	$	(9,194.6)
Tax impact of fresh start adjustments	19.4
	$	(9,175.2)

(x) Accumulated other comprehensive loss

Reflects the fresh start adjustments for the elimination of Predecessor accumulated other comprehensive loss through Reorganization items, net.

4. REVENUE FROM CONTRACTS WITH CUSTOMERS

Our drilling contracts with customers provide a drilling rig and drilling services on a day rate contract basis. Under day rate contracts, we provide an integrated service that includes the provision of a drilling rig and rig crews for which we receive a daily rate that may vary between the full rate and zero rate throughout the duration of the contractual term, depending on the operations of the rig.

We also may receive lump-sum fees or similar compensation for the mobilization, demobilization and capital upgrades of our ~~consolidated balance sheets~~rigs. Our customers bear substantially all of the costs of constructing the well and ~~totaled $13.6 million~~supporting drilling operations, as well as the economic risk relative to the success of the well.

Our drilling contracts contain a lease component and~~$15.3 million~~ we have elected to apply the practical expedient provided under ASC 842 to not separate the lease and non-lease components and apply the revenue recognition guidance in ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606). Our drilling service provided under each drilling contract is a single performance obligation satisfied over time and comprised of a series of

119

The amount estimated for variable consideration is only recognized as revenue to the extent that it is probable that a significant reversal will not occur during the contract term. We have applied the optional exemption afforded in ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606), and have not disclosed the variable consideration related to our estimated future day rate revenues. The remaining duration of our drilling contracts based on those in place as of December 31, ~~2018and2017, respectively. Amortization of such costs totaled $12.4 million~~, ~~$12.1 million~~2021 was between approximately 1 month and ~~$16.8 million~~3.5 years.

Day Rate Drilling Revenue

Our drilling contracts provide for payment on a day rate basis and include a rate schedule with higher rates for periods when the drilling rig is operating and lower rates or zero rates for periods when drilling operations are interrupted or restricted. The day rate invoiced to the customer is determined based on the varying rates applicable to specific activities performed on an hourly or other time increment basis. Day rate consideration is allocated to the distinct hourly or other time increment to which it relates within the contract term and is generally recognized consistent with the contractual rate invoiced for the ~~years ended December 31, 2018, 2017~~services provided during the respective period. Invoices are typically issued to our customers on a monthly basis and ~~2016, respectively.~~payment terms on customer invoices are typically 30 days.

~~Future Amortization~~We may receive termination fees if certain drilling contracts are terminated by the customer prior to the end of the contractual term. Such compensation is recognized as revenue when our performance obligation is satisfied, the termination fee can be reasonably measured and collection is probable.

Mobilization / Demobilization Revenue

In connection with certain contracts, we receive lump-sum fees or similar compensation for the mobilization of equipment and personnel prior to the commencement of drilling services or the demobilization of equipment and personnel upon contract completion. Fees received for the mobilization or demobilization of equipment and personnel are included in Operating revenues. The costs incurred in connection with the mobilization and demobilization of equipment and personnel are included in Contract ~~Liabilities~~drilling expense.

Mobilization fees received prior to commencement of drilling operations are recorded as a contract liability and ~~Deferred Costs~~amortized on a straight-line basis over the contract term. Demobilization fees expected to be received upon contract completion are estimated at contract inception and recognized on a straight-line basis over the contract term. In some cases, demobilization fees may be contingent upon the occurrence or non-occurrence of a future event. In such cases, this may result in cumulative-effect adjustments to demobilization revenues upon changes in our estimates of future events during the contract term.

~~Our~~

120

Capital Upgrade / Contract Preparation Revenue

In connection with certain contracts, we receive lump-sum fees or similar compensation for requested capital upgrades to our drilling rigs or for other contract ~~liabilities~~preparation work. Fees received for requested capital upgrades and ~~deferred costs~~other contract preparation work are recorded as a contract liability and amortized on a straight-line basis over the contract term ~~or corresponding certification period~~ to operating revenues. Costs incurred for capital upgrades are capitalized and depreciated over the useful life of the asset.

Contract Assets and Liabilities

Contract liabilities generally represent fees received for mobilization, capital upgrades or in the case of our 50/50 joint venture with Saudi Aramco, represent the difference between the amounts billed under the bareboat charter arrangements and lease revenues earned up to the respective period end. See “Note 6 – Equity Method Investment in ARO" for additional details regarding our balances with ARO.

Contract assets and liabilities are presented net on our Consolidated Balance Sheets on a contract-by-contract basis. Current contract assets and liabilities are included in Other current assets and Accrued liabilities and other, respectively, and noncurrent contract assets and liabilities are included in Other assets and Other liabilities, respectively, on our Consolidated Balance Sheets.

The following table summarizes our contract assets and contract ~~drilling expense, respectively. Expected future amortization of our contract~~ liabilities ~~and deferred costs recorded as of December 31, 2018 is set forth in the table below~~ (in millions):


	Successor		Predecessor
	December 31, 2021		December 31, 2020
Current contract assets	$	0.3	$	1.4
Noncurrent contract assets	$	—	$	0.4
Current contract liabilities (deferred revenue)	$	45.8	$	57.6
Noncurrent contract liabilities (deferred revenue)	$	10.8	$	14.3

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2019 2020 2021 2022 and Thereafter Total
Amortization of contract liabilities $ 57.0
$ 11.7
$ 7.2
$ 1.5
$ 77.4
Amortization of deferred costs $ 23.8
$ 9.4
$ 2.4
$ 1.5
$ 37.1

~~3. ACQUISITION OF ATWOOD~~

~~On the Merger Date, we completed the Atwood Merger with Atwood and Echo Merger Sub, LLC, our wholly-owned subsidiary. Assets acquired~~Changes in contract assets and liabilities assumed in the Atwood Merger were recorded at their estimated fair values as of the Merger Date under the acquisition method of accounting. As of September 30, 2018, we completed our fair value assessments.

~~Consideration~~

As a result of the Atwood Merger, Atwood shareholders received 1.60 Ensco Class A Ordinary shares for each share of Atwood common stock, representing a value of $9.33 per share of Atwood common stock based on a closing price of $5.83 per Class A ordinary share on October 5, 2017, the last trading day before the Merger Date. Total consideration delivered in the Atwood Merger consisted of 132.2 million of our Class A ordinary shares and $11.1 million of cash in settlement of certain share-based payment awards. The total aggregate value of consideration transferred was $781.8 million. Additionally, upon closing of the Atwood Merger, we utilized cash acquired of $445.4 million and cash on hand to extinguish Atwood's revolving credit facility, outstanding senior notes and accrued interest totaling $1.3 billion. The estimated fair values assigned to assets acquired net of liabilities assumed exceeded the consideration transferred, resulting in a bargain purchase gain of $140.2 million that was recognized during the ~~fourth quarter of 2017. During 2018, we recognized measurement~~ period adjustments as we completed our fair value assessments resulting in additional bargain purchase gain of $1.8 million. Bargain purchase gain was included in other, net, in our consolidated statements of operations.

~~Assets Acquired and Liabilities Assumed~~

~~The provisional amounts recorded for assets acquired and liabilities assumed as of the Merger Date and respective measurement period adjustments were~~are as follows (in millions):


	Contract Assets		Contract Liabilities
Balance as of December 31, 2020 (Predecessor)	$	1.8	$	71.9
Revenue recognized in advance of right to bill customer	2.3		—
Increase due to cash received	—		10.2
Decrease due to amortization of deferred revenue that was included in the beginning contract liability balance	—		(14.8)

Decrease due to transfer to receivables during the period	(1.6)		—
Fresh start accounting revaluation	(0.3)		(31.6)
Balance as of April 30, 2021 (Predecessor)	2.2		35.7
Balance as of May 1, 2021 (Successor)	2.2		35.7
Revenue recognized in advance of right to bill customer	2.5		—
Increase due to cash received	—		80.1

Decrease due to amortization of deferred revenue that was added during the period	—		(21.5)
Decrease due to transfer to receivables and payables during the period	(4.4)		(37.7)
Balance as of December 31, 2021 (Successor)	$	0.3	$	56.6

Amounts Recognized as of Merger Date
Measurement Period Adjustments ⁽¹⁾
Estimated Fair Value
Assets:
Cash and cash equivalents⁽²⁾
$ 445.4
$ —
$ 445.4
Accounts receivable⁽³⁾
62.3
(1.6 ) 60.7
Other current assets 118.1
4.6
122.7
Property and equipment 1,762.0
9.2
1,771.2
Other assets 23.7
(5.1 ) 18.6
Liabilities:
Accounts payable and accrued liabilities 64.9
(1.1 ) 63.8
Other liabilities 118.7
6.4
125.1
Net assets acquired 2,227.9
1.8
2,229.7
Less:
Merger consideration (781.8 ) (781.8 )
Repayment of Atwood debt⁽²⁾
(1,305.9 ) (1,305.9 )
Bargain purchase gain $ 140.2
$ 142.0

Deferred Contract Costs

⁽¹⁾~~The measurement period adjustments reflect changes~~

Costs incurred for upfront rig mobilizations and certain contract preparations are attributable to our future performance obligation under each respective drilling contract. These costs are deferred and amortized on a straight-line basis over the contract term. Demobilization costs are recognized as incurred upon contract completion. Costs associated with the mobilization of equipment and personnel to more promising market areas without contracts are expensed as incurred. Deferred contract costs were included in ~~the estimated fair values of certain~~Other current assets and ~~liabilities, primarily related to inventory, capital equipment~~Other assets on our Consolidated Balance Sheets and other liabilities. The measurement period adjustments were recorded to reflect new information obtained about facts and circumstances existing as of the Merger Date and did not result from subsequent intervening events.

⁽²⁾~~Upon closing of the Atwood Merger, we utilized acquired cash of $445.4~~totaled $31.4 million and ~~cash on hand from the liquidation of short-term investments to repay Atwood's debt and accrued interest of $1.3 billion.~~

⁽³⁾~~Gross contractual amounts receivable totaled $64.7~~$13.8 million as of December 31, 2021 (Successor) and December 31, 2020 (Predecessor), respectively. For the ~~Merger Date.~~

~~Bargain Purchase Gain~~

~~The fair values assigned to assets acquired net~~Successor, during the eight months ended December 31, 2021, amortization of ~~liabilities assumed exceeded~~such costs totaled $22.0 million. For the ~~consideration transferred, resulting in a bargain purchase gain primarily due to depressed offshore drilling company valuations. Market capitalizations across~~Predecessor, during the offshore drilling industry declined significantly since mid-2014 due to the decline in commodity prices and the related imbalance of supply and demand for drilling rigs. The resulting bargain purchase gain was further driven by the decline in our share price from $6.70 to $5.83 between the last trading day prior to the announcement of the Atwood Merger and the Merger Date.

~~Merger-Related Costs~~

~~Merger-related costs were expensed as incurred and consisted of various advisory, legal, accounting, valuation and other professional or consulting fees totaling $19.4 million for~~four months ended April 30, 2021, the year ended December 31, ~~2017. These~~2020 and the year ended December 31, 2019, amortization of such costs ~~are included in general~~totaled $7.6 million, $42.1 million and ~~administrative expense in our consolidated statements of operations.~~$42.1 million respectively.

Property and Equipment

Concurrent with our emergence from bankruptcy, we applied fresh start accounting and adjusted the carrying value of our drilling rigs to estimated fair value. See "Note 3 - Fresh Start Accounting" to our consolidated financial statements included in "Item 8. Financial Statements and Supplementary Data" for more information. As of December 31, 2021, the carrying value of our property and equipment totaled $890.9 million, which represented 34% of total assets. This carrying value reflects the application of our property and equipment accounting policies, which incorporate our estimates, judgments and assumptions relative to the capitalized costs, useful lives and salvage values of our rigs.

Property and equipment ~~acquired~~held-for-sale is recorded at the lower of net book value or fair value less cost to sell.

Impairment of Property and Equipment

Our judgments and assumptions about future cash flows to be generated by our drilling rigs are highly subjective and based on consideration of the following:

•global macroeconomic and political environment,

•historical utilization, day rate and operating expense trends by asset class,

•regulatory requirements such as surveys, inspections and recertification of our rigs,

•remaining useful lives of our rigs,

•expectations on the use and eventual disposition of our rigs,

•weighted-average cost of capital,

•oil price projections,

•sanctioned and unsanctioned offshore project data,

•offshore economic project break-even data,

•global rig supply and construction orders,

•global rig fleet capabilities and relative rankings, and

•expectations of global rig fleet attrition.

The highly cyclical nature of our industry cannot be reasonably predicted with a high level of accuracy and, therefore, differences between our historical judgments and assumptions and actual results will occur. We reassess our judgments and assumptions in the period in which significant differences are observed and may conclude that a triggering event has occurred and perform a recoverability test. We recognized impairment charges in recent periods upon observation of significant unexpected changes in our business climate and estimated useful lives of certain assets.

There are numerous factors underlying the highly cyclical nature of our industry that are reasonably likely to impact our judgments and assumptions including, but not limited to, the following:

•changes in global economic conditions and demand,

•production levels of the Organization of Petroleum Exporting Countries (“OPEC”),

•production levels of non-OPEC countries,

•advances in exploration and development technology,

•offshore and onshore project break-even economics,

•development and exploitation of alternative fuels,

•natural disasters or other operational hazards,

•changes in relevant law and governmental regulations,

•political instability and/or escalation of military actions in the areas we operate,

•changes in the timing and rate of global newbuild rig construction, and

•changes in the timing and rate of global rig fleet attrition.

Income Taxes

The carrying values of liabilities for income taxes currently payable and unrecognized tax benefits are based on our interpretation of applicable tax laws and incorporate estimates, judgments and assumptions regarding the use of tax planning strategies in various taxing jurisdictions. The use of different estimates, judgments and assumptions in connection with accounting for income taxes, especially those involving the ~~Atwood Merger consisted primarily~~deployment of tax planning strategies, may result in materially different carrying values of income tax assets and liabilities and operating results.

•During recent years, the number of tax jurisdictions in which we conduct operations has increased.

•We may conduct future operations in certain tax jurisdictions where tax laws are not well developed, and it may be difficult to secure adequate professional guidance.

Pension and Other Postretirement Benefits

Our pension and other postretirement benefit liabilities and costs are based upon actuarial computations that reflect our assumptions about future events, including long-term asset returns, interest rates, annual compensation increases, mortality rates and other factors. Key assumptions at December 31, 2021, included (1) a weighted average discount rate of 2.73% to determine pension benefit obligations, (2) a weighted average discount rate of 2.84% to determine net periodic pension cost and (3), an expected long-term rate of return on pension plan assets of 6.03% to determine net periodic pension cost. Upon emergence, our pension and other post retirement plans were remeasured as of the Effective Date. Key assumptions at the Effective Date included (1) a weighted average discount rate of 2.81% to determine pension benefit obligations and (2) an expected long-term rate of return on pension plan assets of 6.03% to determine net periodic pension cost. The assumed discount rate is based upon the average yield for Moody’s Aa-rated corporate bonds, and the rate of return assumption reflects a probability distribution of expected long-term returns that is weighted based upon plan asset allocations. Using our key assumptions at December 31, 2021, a one-percentage-point decrease in the assumed discount rate would increase our recorded pension and other postretirement benefit liabilities by approximately $109.1 million, while a one-percentage-point decrease (increase) in the expected long-term rate of return on plan assets would increase (decrease) annual net benefits cost by approximately $4.1 million. To develop the expected long-term rate of return on assets assumption, we considered the current level of expected returns on risk-free investments (primarily government bonds), the historical level of the risk premium associated with the plans’ other asset classes, and the expectations for future returns of each asset class. The expected return for each asset class was then weighted based upon the current asset allocation to develop the expected long-term rate of return on assets assumption for the plan, which increased to 6.26% at December 31, 2021 from 6.03% at December 31, 2020. See "Note 1 3 - Pension and Other Post Retirement Benefits" to our consolidated financial statements included in "Item 8. Financial Statements and Supplementary Data" for information on our pension and other postretirement benefit plans.

NEW ACCOUNTING PRONOUNCEMENTS

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Not applicable.

Item 8. Financial Statements and Supplementary Data

MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

Under the supervision and with the participation of management, including the Chief Executive Officer and Interim Chief Financial Officer, we have conducted an evaluation of the effectiveness of our internal control over financial reporting based on the criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on this evaluation, we have concluded that our internal control over financial reporting is effective as of December 31, 2021 to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

February 22, 2022

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders

Valaris Limited:

Opinion on the Consolidated Financial Statements

New Basis of Presentation

Basis for Opinion

Critical Audit Matters

Valuation of drilling rigs upon emergence from bankruptcy

As disclosed in Note 3 to the consolidated financial statements, on April 30, 2021, the Company satisfied all conditions to effect its Plan of Reorganizationand ~~related equipment, including four drillships (two~~emerged from Chapter 11 bankruptcy. In connection with its emergence and in accordance with ASC 852, the Company qualified for and applied fresh start accounting. The Company involved third-party valuation advisors to assist with the valuation process of ~~which~~certain assets valued in fresh start. The Company's principal assets are ~~under construction), two semisubmersible rigs and five jackup rigs. We recorded~~its property and equipment, ~~acquired at its~~which is primarily comprised of the drilling rigs. As part of fresh start accounting, management recorded property, plant and equipment of $909.1 million, a portion of which related to the drilling rigs. The valuation of the Company's drilling rigs was estimated ~~fair value~~using an income approach or estimated sales price.

We identified the valuation of ~~$1.8 billion. We estimated~~

the Company's drilling rigs upon emergence from bankruptcy as a critical audit matter. A higher degree of subjective auditor judgment was required to evaluate the methodology used in the application of the adjustment to reconcile the fair value of the drilling rigs to the reorganization value and certain assumptions used in the Company's determination of fair value of its drilling rigs using the income approach. Specifically, future day rates and utilization associated with rig stacking assumptions were based on unobservable inputs for which there was limited information. In addition, the audit effort involved the use of professionals with specialized skills and knowledge.

Income tax positions pertaining to certain tax transactions

The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested the operating effectiveness of certain internal controls over the Company's income tax process. This included controls related to the interpretation of tax laws applicable to certain transactions and the assessment that tax positions pertaining to those transactions have a more than 50 percent likelihood of being sustained with taxing authorities. We involved tax professionals with specialized skills and knowledge, who assisted in evaluating the Company's interpretation of local tax laws and assessment of whether tax positions had a greater than 50 percent likelihood of being sustained with taxing authorities.

/s/ KPMG LLP

We have served as the Company’s auditor since 2002.

Houston, Texas

February 22, 2022

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders

Valaris Limited:

Opinion on Internal Control Over Financial Reporting

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2021 (Successor) and 2020 (Predecessor), the related consolidated statements of operations, comprehensive loss, and cash flows for the periods from May 1, 2021 to December 31, 2021 (Successor period) and from January 1, 2021 to April 30, 2021 and for each of the years in the two-year period ended December 31, 2020 (Predecessor periods), and the related notes (collectively, the consolidated financial statements), and our report dated February 22, 2022 expressed an unqualified opinion on those consolidated financial statements.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

Definition and Limitations of Internal Control Over Financial Reporting

/s/ KPMG LLP

Houston, Texas

February 22, 2022

VALARIS LIMITED AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(in millions, except per share amounts)


	Successor		Predecessor
	Eight Months Ended December 31, 2021		Four Months Ended April 30, 2021		Year Ended December 31, 2020		Year Ended December 31, 2019
OPERATING REVENUES	$	835.0	$	397.4	$	1,427.2	$	2,053.2
OPERATING EXPENSES
Contract drilling (exclusive of depreciation)	728.7		343.8		1,470.4		1,807.8
Loss on impairment	—		756.5		3,646.2		104.0
Depreciation	66.1		159.6		540.8		609.7
General and administrative	58.2		30.7		214.6		188.9
Total operating expenses	853.0		1,290.6		5,872.0		2,710.4
OTHER OPERATING INCOME	—		—		118.1		—
EQUITY IN EARNINGS (LOSSES) OF ARO	6.1		3.1		(7.8)		(12.6)
OPERATING LOSS	(11.9)		(890.1)		(4,334.5)		(669.8)
OTHER INCOME (EXPENSE)
Interest income	28.5		3.6		19.7		28.1
Interest expense, net (Unrecognized contractual interest expense for debt subject to compromise was $132.9 million and $140.7 million for the four months ended April 30, 2021 and the year ended December 31, 2020, respectively)	(31.0)		(2.4)		(290.6)		(428.3)
Reorganization items, net	(15.5)		(3,584.6)		(527.6)		—
Other, net	38.1		25.9		16.0		1,006.2
	20.1		(3,557.5)		(782.5)		606.0
INCOME (LOSS) BEFORE INCOME TAXES	8.2		(4,447.6)		(5,117.0)		(63.8)
PROVISION (BENEFIT) FOR INCOME TAXES
Current income tax expense (benefit)	58.7		34.4		(153.7)		104.5
Deferred income tax expense (benefit)	(21.3)		(18.2)		(105.7)		23.9
	37.4		16.2		(259.4)		128.4


NET LOSS	(29.2)		(4,463.8)		(4,857.6)		(192.2)
NET (INCOME) LOSS ATTRIBUTABLE TO NONCONTROLLING INTERESTS	(3.8)		(3.2)		2.1		(5.8)
NET LOSS ATTRIBUTABLE TO VALARIS	$	(33.0)	$	(4,467.0)	$	(4,855.5)	$	(198.0)
LOSS PER SHARE - BASIC AND DILUTED	$	(0.44)	$	(22.38)	$	(24.42)	$	(1.14)
WEIGHTED-AVERAGE SHARES OUTSTANDING
Basic and Diluted	75.0		199.6		198.9		173.4

The accompanying notes are an integral part of these consolidated financial statements.

VALARIS LIMITED AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(in millions)


	Successor		Predecessor
	Eight Months Ended December 31, 2021		Four Months Ended April 30, 2021		Year Ended December 31, 2020		Year Ended December 31, 2019
NET LOSS	$	(29.2)	$	(4,463.8)	$	(4,857.6)	$	(192.2)
OTHER COMPREHENSIVE LOSS, NET
Net changes in pension and other postretirement plan assets and benefit obligations recognized in other comprehensive loss, net of income tax benefit of $5.9 million for the year ended December 31, 2019. No income tax benefit was recognized during the eight months ended December 31, 2021 (Successor), four months ended April 30, 2021 (Predecessor), and year ended December 31, 2020 (Predecessor).	(9.1)		0.1		(76.3)		(21.7)
Net change in fair value of derivatives	—		—		(5.4)		1.6
Amortization of settlement gain, net of income tax expense of $0.1 million for the year ended December 31, 2020	—		—		(0.2)		—
Reclassification of net (gains) losses on derivative instruments from other comprehensive loss into net loss	—		(5.6)		(11.6)		8.3
Other	—		—		(0.6)		(0.2)
NET OTHER COMPREHENSIVE LOSS	(9.1)		(5.5)		(94.1)		(12.0)
COMPREHENSIVE LOSS	(38.3)		(4,469.3)		(4,951.7)		(204.2)
COMPREHENSIVE (INCOME) LOSS ATTRIBUTABLE TO NONCONTROLLING INTERESTS	(3.8)		(3.2)		2.1		(5.8)
COMPREHENSIVE LOSS ATTRIBUTABLE TO VALARIS	$	(42.1)	$	(4,472.5)	$	(4,949.6)	$	(210.0)

The accompanying notes are an integral part of these consolidated financial statements.

VALARIS LIMITED AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(in millions, except share and par value amounts)


	Successor		Predecessor
	December 31, 2021		December 31, 2020
ASSETS
CURRENT ASSETS
Cash and cash equivalents	$	608.7	$	325.8

Restricted cash	35.9		11.4
Accounts receivable, net	444.2		449.2
Other current assets	117.8		386.5
Total current assets	1,206.6		1,172.9
PROPERTY AND EQUIPMENT, AT COST	957.0		13,209.3
Less accumulated depreciation	66.1		2,248.8
Property and equipment, net	890.9		10,960.5
LONG-TERM NOTES RECEIVABLE FROM ARO	249.1		442.7
INVESTMENT IN ARO	86.6		120.9
OTHER ASSETS	176.0		176.2
	$	2,609.2	$	12,873.2
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable - trade	$	225.8	$	176.4
Accrued liabilities and other	196.2		250.4

Total current liabilities	422.0		426.8
LONG-TERM DEBT	545.3		—
OTHER LIABILITIES	581.1		762.4
Total liabilities not subject to compromise	1,548.4		1,189.2
LIABILITIES SUBJECT TO COMPROMISE	—		7,313.7
COMMITMENTS AND CONTINGENCIES	0		0
VALARIS SHAREHOLDERS' EQUITY
Predecessor Class A ordinary shares, U.S. $0.40 par value, 206.1 million shares issued as of December 31, 2020	—		82.5
Predecessor Class B ordinary shares, £1 par value, 50,000 shares issued as of December 31, 2020	—		0.1
Successor common shares, $0.01 par value, 700 million shares authorized, 75 million shares issued as of December 31, 2021	0.8		—
Successor preference shares, $0.01 par value, 150 million shares authorized, 0 shares issued as of December 31, 2021	—		—
Successor stock warrants	16.4		—
Additional paid-in capital	1,083.0		8,639.9
Retained deficit	(33.0)		(4,183.8)
Accumulated other comprehensive loss	(9.1)		(87.9)
Predecessor Treasury shares, at cost, 6.6 million shares as of December 31, 2020	—		(76.2)
Total Valaris shareholders' equity	1,058.1		4,374.6
NONCONTROLLING INTERESTS	2.7		(4.3)
Total equity	1,060.8		4,370.3
	$	2,609.2	$	12,873.2

The accompanying notes are an integral part of these consolidated financial statements.

VALARIS LIMITED AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in millions)


	Successor		Predecessor
	Eight Months Ended December 31, 2021		Four Months Ended April 30, 2021		Year Ended December 31, 2020		Year Ended December 31, 2019
OPERATING ACTIVITIES
Net loss	$	(29.2)	$	(4,463.8)	$	(4,857.6)	$	(192.2)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation expense	66.1		159.6		540.8		609.7
Deferred income tax expense (benefit)	(21.3)		(18.2)		(105.7)		23.9
Gain on asset disposals	(21.2)		(6.0)		(11.8)		(1.8)
Accretion of discount on shareholders note	(20.8)		—		—		—
Net periodic pension and retiree medical income	(8.7)		(5.4)		(14.6)		(4.3)
Equity in losses (earnings) of ARO	(6.1)		(3.1)		7.8		12.6
Share-based compensation expense	4.3		4.8		21.4		37.3
Amortization, net	2.3		(4.8)		6.2		(16.8)
Debt discounts and other	0.5		—		36.8		31.5
Loss on Impairment	—		756.5		3,646.2		104.0
Adjustment to (gain on) bargain purchase	—		—		6.3		(637.0)
Gain on debt extinguishment	—		—		(3.1)		(194.1)
Debtor in possession financing fees and payments on Backstop Commitment Agreement	—		—		40.0		—
Non-cash reorganization items, net	—		3,487.3		436.4		—
Other	0.3		7.3		33.3		16.0
Changes in operating assets and liabilities, net of acquisition	10.3		68.5		(22.0)		(52.5)
Contributions to pension plans and other post-retirement benefits	(2.7)		(22.5)		(12.1)		(13.2)
Net cash used in operating activities	(26.2)		(39.8)		(251.7)		(276.9)
INVESTING ACTIVITIES
Additions to property and equipment	(50.2)		(8.7)		(93.8)		(227.0)

Net proceeds from disposition of assets	25.1		30.1		51.8		17.7
Rowan cash acquired	—		—		—		931.9
Maturities of short-term investments	—		—		—		474.0
Purchases of short-term investments	—		—		—		(145.0)

Net cash provided by (used in) investing activities	(25.1)		21.4		(42.0)		1,051.6
FINANCING ACTIVITIES
Issuance of first lien notes	—		520.0		—		—
Payments to Predecessor creditors	—		(129.9)		—		—
Borrowings on credit facility	—		—		596.0		215.0
Debtor in possession financing fees and payments on Backstop Commitment Agreement	—		—		(40.0)		—
Repayments of credit facility borrowings	—		—		(15.0)		(215.0)
Reduction of long-term borrowings	—		—		(9.7)		(928.1)
Purchase of noncontrolling interest	—		—		(7.2)		—
Debt solicitation fees	—		—		—		(9.5)
Cash dividends paid	—		—		—		(4.5)



Other	—		(1.4)		(1.9)		(10.2)
Net cash provided by (used in) financing activities	—		388.7		522.2		(952.3)

Effect of exchange rate changes on cash and cash equivalents	(0.1)		(0.1)		0.1		(0.3)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS AND RESTRICTED CASH	(51.4)		370.2		228.6		(177.9)
CASH AND CASH EQUIVALENTS AND RESTRICTED CASH, BEGINNING OF YEAR	696.0		325.8		97.2		275.1
CASH AND CASH EQUIVALENTS AND RESTRICTED CASH, END OF YEAR	$	644.6	$	696.0	$	325.8	$	97.2

The accompanying notes are an integral part of these consolidated financial statements.

VALARIS LIMITED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. DESCRIPTION OF THE BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Business

Our customers include many of the leading national and international oil companies, in addition to many independent operators. We are among the most geographically diverse offshore drilling companies, with current operations spanning 14 countries. The markets in which we operate include the Gulf of Mexico, South America, North Sea, the Middle East, Africa, Australia and Southeast Asia.

Chapter 11 Cases

See“Note 2 – Chapter 11 Proceedings” for additional details regarding the Chapter 11 Cases.

Fresh Start Accounting

On the Effective Date, the Debtors emerged from the Chapter 11 Cases. Upon emergence from the Chapter 11 Cases, we qualified for and adopted fresh start accounting. The application of fresh start accounting resulted in a new basis of accounting, and the Company became a new entity for financial reporting purposes. Accordingly, our financial statements and notes after the Effective Date are not comparable to our financial statements and notes on and prior to that date. Furthermore, the consolidated financial statements and notes have been presented with a black line division to delineate the lack of comparability between the Predecessor and Successor.

See “Note 2 – Chapter 11 Proceedings” and “Note 3 - Fresh Start Accounting” for additional details regarding the Chapter 11 Cases and fresh start accounting.

Changes in Accounting Policies

Upon emergence from bankruptcy, we elected to change our accounting policies related to property and equipment as well as materials and supplies.

Prior to emergence from bankruptcy, we recorded our drilling rigs as a single asset with a useful life ascribed by the expected useful life of that asset. Upon emergence, we have identified the significant components of our drilling rigs and ascribed useful lives based on the expected time until the next required overhaul or the end of the expected economic lives of the components.

Historically, we recognized materials and supplies on the balance sheet when purchased and subsequently expensed items when consumed. Following emergence, materials and supplies will be expensed as a period cost when received. Additionally, a customer arrangement provides that we take title to their materials and supplies for the duration of the contract and return or pay cash for them at the termination of the contract. Together with our policy change on materials and supplies, we elected to record these assets and the obligation to our customer on a net basis as opposed to a gross basis.

Accounting Policies

Principles of Consolidation

Reclassification

Certain previously reported amounts have been reclassified to conform to the current year presentation.

Pervasiveness of Estimates

Foreign Currency Remeasurement and Translation

Our functional currency is the U.S. dollar. As is customary in the oil and gas industry, a majority of our revenues and expenses are denominated in U.S. dollars; however, a portion of the revenues earned and expenses incurred by certain of our subsidiaries are denominated in currencies other than the U.S. dollar. These transactions are remeasured in U.S. dollars based on a combination of both current and historical exchange rates. Most transaction gains and losses, including certain gains and losses on our prior derivative instruments, are included in Other, net, in our Consolidated Statements of Operations. Certain gains and losses from the translation of foreign currency balances of our non-U.S. dollar functional currency subsidiaries are included in Accumulated other comprehensive income on our Consolidated Balance Sheet. Net foreign currency exchange gains were $8.1 million and $13.4 million, and were included in Other, net, in our Consolidated Statements of Operations for the eight months ended December 31, 2021 (Successor) and four months ended April 30, 2021 (Predecessor), respectively. Net foreign currency exchange losses, inclusive of offsetting fair value derivatives were $11.0 million and $7.4 million, and were included in Other, net, in our Consolidated Statements of Operations for the year ended December 31, 2020 (Predecessor) and 2019 (Predecessor), respectively.

Cash Equivalents and Short-Term Investments

Property and Equipment

All costs incurred in connection with the acquisition, construction, major enhancement and improvement of assets are capitalized, including allocations of interest incurred during periods that our drilling rigs are under construction or undergoing major enhancements and improvements. Costs incurred to place an asset into service are capitalized, including costs related to the initial mobilization of a newbuild drilling rig. Repair and maintenance costs are charged to contract drilling expense in the period in which they are incurred. Upon the sale or retirement of assets, the related cost and accumulated depreciation are removed from the balance sheet, and the resulting gain or loss is included in Other, net in our Consolidated Statements of Operations.

See "Changes in Accounting Policies" above for a discussion of the change in our accounting policy for property and equipment upon emergence from bankruptcy. Our property and equipment is depreciated on a straight-line basis, after allowing for salvage values, over the estimated useful lives of our assets. Drilling rigs and related equipment are depreciated over estimated useful lives ranging from five to 35 years. Buildings and improvements are depreciated over estimated useful lives ranging from 10 to 30 years. Other equipment, including computer and communications hardware and software, is depreciated over estimated useful lives ranging from two to six years.

We evaluate the carrying value of our property and equipment, primarily our drilling rigs, on a quarterly basis to identify events or changes in circumstances ("triggering events") that indicate that the carrying value of such rigs may not be recoverable. For property and equipment used in our operations, recoverability generally is determined by comparing the carrying value of an asset to the expected undiscounted future cash flows of the asset. If the carrying value of an asset is not recoverable, the amount of impairment loss is measured as the difference between the carrying value of the asset and its estimated fair value. Property and equipment held-for-sale is recorded at the lower of net book value or fair value less cost to sell.

Operating Revenues and Expenses

Derivative Instruments

Gains and losses on a cash flow hedge, or a portion of a cash flow hedge, that no longer qualifies as effective due to an unanticipated change in the forecasted transaction are recognized currently in earnings and included in Other, net, in our Consolidated Statements of Operations based on the change in the fair value of the derivative. When a forecasted transaction becomes probable of not occurring, gains and losses on the derivative previously recorded in AOCI are reclassified currently into earnings and included in Other, net, in our Consolidated Statements of Operations.

Income Taxes

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We operate in certain jurisdictions where tax laws relating to the offshore drilling industry are not well developed and change frequently. Furthermore, we may enter into transactions with affiliates or employ other tax planning strategies that generally are subject to complex tax regulations. As a result of the foregoing, the tax liabilities and assets we recognize in our financial statements may differ from the tax positions taken, or expected to be taken, in our tax returns. Our tax positions are evaluated for recognition using a more-likely-than-not threshold, and those tax positions requiring recognition are measured as the largest amount of tax benefit that is greater than 50% likely of being realized upon effective settlement with a taxing authority that has full knowledge of all relevant information. Interest and penalties relating to income taxes are included in Current income tax expense in our Consolidated Statements of Operations.

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Share-Based Compensation

Pension and Other Post-retirement benefit plans

Fair Value Measurements

We measure certain of our assets and liabilities based on a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy assigns the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities ("Level 1") and the lowest priority to unobservable inputs ("Level 3"). Level 2 measurements represent inputs that are observable for similar assets or liabilities, either directly or indirectly, other than quoted prices included within Level 1. See "Note 7 - Fair Value Measurements" for additional information on the fair value measurement of certain of our assets and liabilities.

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Noncontrolling Interests

Earnings Per Share


	Successor		Predecessor
	Eight Months Ended December 31, 2021		Four Months Ended April 30, 2021		Year Ended December 31, 2020		Year Ended December 31, 2019
Loss from continuing operations attributable to Valaris	$	(33.0)	$	(4,467.0)	$	(4,855.5)	$	(198.0)
Income from continuing operations allocated to non-vested share awards (1)	—		—		—		(0.1)
Loss from continuing operations attributable to Valaris shares	$	(33.0)	$	(4,467.0)	$	(4,855.5)	$	(198.1)

(1) Losses are not allocated to non-vested share awards. Due to the net loss position, potentially dilutive share awards are excluded from the computation of diluted EPS.

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Cancellation of Predecessor Equity and Issuance of Warrants

New Accounting Pronouncements

Recently adopted accounting pronouncements

Accounting pronouncements to be adopted

Reference Rate Reform - In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting ("Update 2020-04"), which provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships and other transactions affected by reference rate reform if certain criteria are met. The amendments in Update 2020-04 apply only to contracts, hedging relationships and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. The expedients and exceptions provided by the amendments do not apply to contract modifications made and hedging relationships entered into or evaluated after December 31, 2022, except for hedging relationships existing as of December 31, 2022, for which an entity has elected certain optional expedients and that are retained through the end of the hedging relationship. The provisions in Update 2020-04 are effective upon issuance and can be applied prospectively through December 31, 2022. Our notes receivable with ARO, from which we generate interest income on a LIBOR-based rate, are impacted by the application of this standard. As the notes bear interest on the LIBOR rate determined at the end of the preceding year, the rate governing our interest income in 2022 has already been determined. We expect to be able to modify the terms of our notes receivable to a comparable interest rate before the applicable LIBOR rate is no longer available and as such, do not expect this standard to have a material impact to our consolidated financial statements.

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Leases - In July 2021, the FASB issued ASU 2021-05, “Leases (Topic 842); Lessors - Certain Leases with Variable Lease Payments”, (“Update 2021-05”) which requires a lessor to classify a lease with entirely or partially variable payments that do not depend on an index or rate as an operating lease if another classification (i.e. sales-type or direct financing) would trigger a day-one loss. Update 2021-05 is effective for fiscal years beginning after December 15, 2021, with early adoption permitted. We are in the process of evaluating the impact this amendment will have on our consolidated financial statements.

Business Combinations - In October 2021, the FASB issued ASU 2021-08, “Accounting for Contracts Assets and Contract Liabilities from Contracts with Customers” (“Update 2021-08”). ASU 2021-08 requires an entity (acquirer) to recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with Topic 606 and provides practical expedients for acquirers when recognizing and measuring acquired contract assets and contract liabilities from revenue contracts in a business combination. The amendments also apply to contract assets and contract liabilities from other contracts to which the provisions of Topic 606 apply, such as contract liabilities for the sale of nonfinancial assets within the scope of Subtopic 610-20, Other Income - Gains and Losses from the Derecognition of Nonfinancial Assets. The FASB issued the update to improve the accounting for acquired revenue contracts with customers in a business combination. The ASU’s amendments are effective for fiscal years beginning after December 15, 2022, and interim periods within those fiscal years, with early adoption permitted. We will adopt Update 2021-08 in the period required and will apply it to any business combination completed subsequent to the adoption.

2. CHAPTER 11 PROCEEDINGS

Chapter 11 Cases and Emergence from Chapter 11

Below is a summary of the terms of the plan of reorganization:

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•The Legacy Valaris revolving credit facility (the "Revolving Credit Facility") was terminated and the holders thereunder received the treatment as set forth in the plan of reorganization;

•Holders of general unsecured claims are entitled to receive payment in full within ninety days after the later of (a) the Effective Date and (b) the date such claim comes due;

•375,000 Common Shares were issued and $5.0 million was paid to Daewoo Shipbuilding & Marine Engineering Co., Ltd (the "Shipyard");

•All equity-based awards of Legacy Valaris that were outstanding were cancelled;

•On the Effective Date, Valaris Limited entered into a registration rights agreement with certain parties who received Common Shares;

•On the Effective Date, Valaris Limited entered into a registration rights agreement with certain parties who received First Lien Notes; and

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Management Incentive Plan

Liabilities Subject to Compromise

Liabilities subject to compromise at December 31, 2020 (Predecessor) consisted of the following (in millions):


6.875% Senior notes due 2020	$	122.9
4.70% Senior notes due 2021	100.7
4.875% Senior notes due 2022	620.8
3.00% Exchangeable senior notes due 2024	849.5
4.50% Senior notes due 2024	303.4
4.75% Senior notes due 2024	318.6
8.00% Senior notes due 2024	292.3
5.20% Senior notes due 2025	333.7
7.375% Senior notes due 2025	360.8
7.75% Senior notes due 2026	1,000.0
7.20% Debentures due 2027	112.1
7.875% Senior notes due 2040	300.0
5.40% Senior notes due 2042	400.0
5.75% Senior notes due 2044	1,000.5
5.85% Senior notes due 2044	400.0
Amounts drawn under the Revolving Credit Facility	581.0
Accrued Interest on Senior Notes and Revolving Credit Facility	203.5
Rig holding costs(1)	13.9
Total liabilities subject to compromise	$	7,313.7

(1) Represents the holding costs incurred to maintain VALARIS DS-13 and VALARIS DS-14 in the shipyard.

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Pre-petition Charges

Reorganization Items

The components of reorganization items, net were as follows (in millions):


	Successor		Predecessor
	Eight Months Ended December 31, 2021		Four Months Ended April 30, 2021		Year Ended December 31, 2020

DIP facility fees	$	—	$	—	$	20.0
Professional fees	17.2		93.4		66.8
Contract items	(1.7)		3.9		4.4

Reorganization items (fees)	15.5		97.3		91.2

Write-off of unamortized debt discounts, premiums and issuance costs	—		—		447.9
Contract items	—		0.5		(11.5)
Backstop premium	—		30.0		—
Gain on settlement of liabilities subject to compromise	—		(6,139.0)		—
Issuance of Common Shares for backstop premium	—		29.1		—
Issuance of Common Shares to the Shipyard	—		5.4		—
Write-off of unrecognized share-based compensation expense	—		16.0		—
Impact of newbuild contract amendments	—		350.7		—
Loss on fresh start adjustments	—		9,194.6		—
Reorganization items (non-cash)	—		3,487.3		436.4

Total reorganization items, net	$	15.5	$	3,584.6	$	527.6

Reorganization items (fees) unpaid	$	0.8	$	38.3	$	61.2
Reorganization items (fees) paid	$	14.7	$	59.0	$	30.0

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3. FRESH START ACCOUNTING

Applicability of Fresh Start Accounting

Reorganization Value

The following table reconciles the enterprise value to the estimated fair value of Successor Common Shares as of the Effective Date (in millions, except per share value):


	April 30, 2021
Enterprise Value	$	1,860.0
Plus: Cash and cash equivalents	607.6
Less: Fair value of debt	(544.8)
Less: Warrants	(16.4)
Less: Noncontrolling interest	1.1
Less: Pension and other post retirement benefits liabilities	(189.0)
Less: Adjustments not contemplated in Enterprise Value	(639.0)
Fair value of Successor Common Shares	$	1,079.5
Shares issued upon emergence	75.0
Per share value	$	14.39

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The following table reconciles the enterprise value to the reorganization value as of the Effective Date (in millions):


	April 30, 2021
Enterprise Value	$	1,860.0
Plus: Cash and cash equivalents	607.6
Plus: Non-interest bearing current liabilities	346.0
Less: Adjustments not contemplated in Enterprise Value	(218.0)
Reorganization value of Successor assets	$	2,595.6

Valuation Process

Property, Plant and Equipment

The estimated fair value of our property and equipment includes an adjustment to reconcile to our reorganization value.

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Notes Receivable from ARO

Investment in ARO

We estimated the fair value of the equity investment in ARO primarily by applying an income approach, using projected discounted cash flows orof the underlying assets, a ~~market approach. We~~risk-adjusted discount rate and an estimated ~~remaining useful lives for Atwood's drilling rigs, which ranged from 16~~effective income tax rate.

Options to ~~35 years~~Purchase Newbuild Rigs

First Lien Notes

The fair value of the First Lien Notes was determined to approximate the par value based on ~~original estimated useful lives of 30 to 35 years.~~

~~Deferred Taxes~~

~~The Atwood Merger was executed through the acquisition of Atwood's outstanding common stock and, therefore, the historical tax bases~~third-party valuation advisors’ analysis of the ~~acquired assets~~Company’s collateral coverage, financial metrics, and ~~assumed liabilities, net operating losses~~interest rate for the First Lien Notes relative to market rates of recent placements of a similar term for industry participants with similar credit risk.

Pensions

Our pension and other ~~tax attributes of Atwood~~postretirement benefit liabilities and costs are based upon actuarial computations that reflect our assumptions about future events, including long-term asset returns, interest rates, annual compensation increases, mortality rates and other factors. Upon emergence, our pension and other post retirement plans were ~~assumed~~remeasured as of the ~~Merger~~Effective Date. ~~However,~~Key assumptions at the Effective Date included (1) a weighted average discount rate of 2.81% to determine pension benefit obligations and (2) an expected long-term rate of return on pension plan assets of 6.03% to determine net periodic pension cost.

Warrants

Condensed Consolidated Balance Sheet

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	As of April 30, 2021
	Predecessor		Reorganization Adjustments			Fresh Start Accounting Adjustments			Successor

ASSETS
CURRENT ASSETS
Cash and cash equivalents	$	280.2	$	327.4	(a)	$	—		$	607.6
Restricted cash	45.7		42.7		(b)	—			88.4
Accounts receivable, net	425.9		—			—			425.9
Other current assets	370.1		1.5		(c)	(281.1)		(o)	90.5
Total current assets	1,121.9		371.6			(281.1)			1,212.4
PROPERTY AND EQUIPMENT, NET	10,026.4		(417.6)		(d)	(8,699.7)		(p)	909.1
LONG-TERM NOTES RECEIVABLE FROM ARO	442.7		—			(214.4)		(q)	228.3
INVESTMENT IN ARO	123.9		—			(43.4)		(r)	80.5
OTHER ASSETS	166.4		(10.0)		(e)	8.9		(s)	165.3
	$	11,881.3	$	(56.0)		$	(9,229.7)		$	2,595.6
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable - trade	$	161.5	$	13.1	(f)	$	(.5)	(t)	$	174.1
Accrued liabilities and other	290.7		(12.4)		(g)	(61.8)		(u)	216.5
Total current liabilities	452.2		0.7			(62.3)			390.6
LONG-TERM DEBT	—		544.8		(h)	—			544.8
OTHER LIABILITIES	706.2		(55.2)		(i)	(85.6)		(v)	565.4
Total liabilities not subject to compromise	1,158.4		490.3			(147.9)			1,500.8
LIABILITIES SUBJECT TO COMPROMISE	7,313.7		(7,313.7)		(j)	—			—
COMMITMENTS AND CONTINGENCIES
VALARIS SHAREHOLDERS' EQUITY
Predecessor Class A ordinary shares	82.5		(82.5)		(k)	—			—
Predecessor Class B ordinary shares	0.1		(0.1)		(k)	—			—
Successor common shares	—		0.8		(l)	—			0.8
Successor stock warrants	—		16.4		(m)	—			16.4
Predecessor additional paid-in capital	8,644.0		(8,644.0)		(k)	—			—
Successor additional paid-in capital	—		1,078.7		(l)	—			1,078.7
Retained deficit	(5,147.4)		14,322.6		(n)	(9,175.2)		(w)	—
Accumulated other comprehensive loss	(93.4)		—			93.4		(x)	—
Predecessor treasury shares	(75.5)		75.5		(k)	—			—
Total Valaris shareholders' equity	3,410.3		6,767.4			(9,081.8)			1,095.9
NONCONTROLLING INTERESTS	(1.1)		—			—			(1.1)
Total equity	3,409.2		6,767.4			(9,081.8)			1,094.8
	$	11,881.3	$	(56.0)		$	(9,229.7)		$	2,595.6

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Reorganization Adjustments

(a) Cash

Represents the reorganization adjustments (in millions):


Receipt of cash for First Lien Notes	$	500.0
Loan proceeds from backstop lenders	20.0
Funds received for liquidation of rabbi trust related to certain employee benefits	17.6
Payments to Predecessor creditors	(129.9)
Transfer of funds for payment of certain professional fees to escrow account	(42.7)
Payment for certain professional services fees	(29.0)
Various other	(8.6)
	$	327.4

(b) Restricted cash

Reflects certain prepayments incurred upon emergence.

(d) Property and Equipment, net

(e) Other assets

Represents the reorganization adjustments (in millions):


Liquidation of rabbi trust related to certain employee benefits	$	(17.6)
Elimination of right-of-use asset associated with Newbuild Rigs	(5.5)
Fair value of options to purchase Newbuild Rigs	13.1
	$	(10.0)

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(f) Accounts payable - trade

Reflects the following reorganization adjustments (in millions):


Professional fees incurred upon emergence	$	26.1
Payment of professional fees incurred prior to emergence	(12.6)
Payment of certain accounts payable incurred prior to emergence	(0.4)
	$	13.1

(g) Accrued liabilities and other

Reflects the following reorganization adjustments (in millions):


Elimination of lease liabilities associated with Newbuild Rigs	$	(5.0)
Elimination of accrued post-petition holding costs associated with Newbuild Rigs	(4.1)
Payment of certain accrued liabilities incurred prior to emergence	(3.3)
	$	(12.4)

(h) Long-term debt

Reflects the reorganization adjustment to record the issuance of the $550.0 million aggregate principal amount of First Lien Notes and debt issuance costs of $5.2 million.

(i) Other liabilities

Reflects the following reorganization adjustments (in millions):


Elimination of construction contract intangible liabilities associated with Newbuild Rigs	$	(49.9)
Elimination of accrued post-petition holding costs associated with Newbuild Rigs	(4.7)
Elimination of lease liabilities associated with Newbuild Rigs	(0.6)
	$	(55.2)

The reorganization adjustments to other liabilities primarily relate to the elimination of construction contract intangible liabilities associated with the Newbuild Rigs. These construction contract intangible liabilities were recorded in purchase accounting for the original contracting entity. As the amended contract is structured as an option whereby we have the right, not the obligation to ~~recognize~~take delivery of the rigs, there is no longer an intangible liability associated with the contracts.

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We have eliminated the historical lease liability associated with the berthing locations of VALARIS DS-13 and VALARIS DS-14 and accrued post-petition holding costs as described in (g) above.

(j) Liabilities subject to compromise

Reflects the following reorganization adjustments (in millions):


Settlement of liabilities subject to compromise	$	7,313.7
Issuance of common stock to Predecessor creditors	(721.0)
Issuance of common stock to backstop parties	(323.8)
Payments to Predecessor creditors	(129.9)
Gain on settlement of liabilities subject to compromise	$	6,139.0

(k) Predecessor ordinary shares, additional paid-in capital and treasury shares

Represents the cancellation of the Predecessor's ordinary shares of $82.6 million, additional paid-in capital of $8,644.0 million and treasury stock of $75.5 million.

(l) Successor common shares and additional paid-in capital

Represents par value of 75 million new Common Shares of $0.8 million and capital in excess of par value of $1,078.7 million.

(m) Successor stock warrants

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(n) Retained deficit

Represents the reorganization adjustments to total equity as follows (in millions):


Gain on settlement of liabilities subject to compromise	$	(6,139.0)
Issuance of Common Shares for backstop premium	29.1
Issuance of Common Shares to the Shipyard	5.4
Write-off of unrecognized share-based compensation expense	16.0
Professional fees and success fees	35.9
Backstop premium	30.0
Impact of newbuild contract amendments	350.7
Reorganization items, net	(5,671.9)
Cancellation of Predecessor common shares	(82.6)
Cancellation of Predecessor treasury shares	75.5
Cancellation of Predecessor additional paid in capital	(7,856.4)
Cancellation of equity component of Predecessor convertible notes	(220.0)
Cancellation of Predecessor cash and equity compensation plans	(583.6)
Fair value of Warrants	16.4
	$	(14,322.6)

Fresh Start Adjustments

(o) Other current assets

Reflects the fresh start adjustments to record the estimated fair value of other current assets as follows (in millions):


Elimination of materials and supplies	$	(260.8)
Elimination of historical deferred contract drilling expenses	(20.3)
	$	(281.1)

Primarily reflects the fresh start adjustment to eliminate the historical balance for materials and supplies as the result of a change in accounting policies upon emergence.

(p) Property and equipment, net

Reflects the fresh start adjustments to historical amounts to record the estimated fair value of property and equipment.

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(q) Long-term notes receivable from ARO

(r) Investment in ARO

Reflects the fresh start adjustment to record the estimated fair value of the equity investment in ARO.

(s) Other assets

Reflects the fresh start adjustments to record the estimated fair value of other assets as follows (in millions):


Deferred tax impacts of certain fresh start adjustments	$	21.1
Fair value of contracts with customers	8.5
Fair value adjustments to right-of-use assets	0.4
Elimination of historical deferred contract drilling expenses	(16.5)
Elimination of other deferred costs	(4.6)
	$	8.9

The fresh start adjustments to eliminate other deferred costs reflect non-operational deferred costs that have no future economic benefit.

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(t) Accounts payable - trade

(u) Accrued liabilities and other

Reflects the fresh start adjustments to record the estimated fair value of current liabilities as follows (in millions):


Elimination of customer payable balance	$	(36.8)
Elimination of historical deferred revenues	(25.9)
Fair value of contracts with customers	0.5
Fair value adjustment to lease liabilities	0.4
	$	(61.8)

The fresh start adjustment to eliminate the customer payable balance is related to the change in accounting policy to present the balance on a net basis.

The fresh start adjustment to record the estimated fair value of contracts with customers reflects the intangible liabilities recognized for firm customer contracts in place at the Effective Date that have unfavorable contract terms as compared to current market day rates for comparable drilling rigs. The various factors considered in the adjustment are (1) the contracted day rate for each contract, (2) the remaining term of each contract, (3) the rig class and (4) the market conditions for each respective rig class at the emergence date. The intangible liabilities are computed based on the present value of the difference in cash inflows over the remaining contract term as compared to a hypothetical contract with the same remaining term at an estimated current market day rate using a risk-adjusted discount rate and an estimated effective income tax ~~effects~~rate. This balance will be amortized to operating revenues over the respective remaining contract terms on a straight-line basis.

The fresh start adjustment to lease liabilities reflects the remeasuring of our operating leases as of the Effective Date.

(v) Other liabilities

Reflects the fresh start adjustments to record the estimated fair value of other liabilities as follows (in millions):


Adjustment to fair value of pension and other post-retirement plan liabilities	$	(82.7)
Elimination of historical deferred revenue	(5.9)
Deferred tax impacts of certain fresh start adjustments	1.7
Fair value adjustments to lease liabilities	1.1
Fair value adjustments to other liabilities	0.2
	$	(85.6)

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The fresh start adjustment to eliminate deferred revenues reflects the noncurrent portion of deferred revenues described in (u) above.

The fresh start adjustment for deferred income tax liabilities represents the estimated incremental deferred taxes, which reflects the tax effect of the differences between ~~acquisition date~~the estimated fair value certain assets and liabilities recorded under fresh start accounting and the carryover tax basis of those assets and liabilities.

The fresh start adjustment to lease liabilities reflects the remeasuring of our operating leases as of the Effective Date.

(w) Retained Deficit

Reflects the fresh start adjustments to retained deficit as follows (in millions):


Fair value adjustments to prepaid and other current assets	$	(281.1)
Fair value adjustments to property	(8,699.7)
Fair value of intangible assets	8.5
Fair value adjustment to investment in ARO	(43.4)
Fair value adjustment to note receivable from ARO	(214.4)
Fair value adjustments to other assets	(20.7)
Fair value adjustments to other current liability	62.8
Fair value of intangible liabilities	(0.5)
Fair value adjustment to other liabilities	87.3
Elimination of Predecessor accumulated other comprehensive loss	(93.4)
Total fresh start adjustments included in reorganization items, net	$	(9,194.6)
Tax impact of fresh start adjustments	19.4
	$	(9,175.2)

(x) Accumulated other comprehensive loss

Reflects the fresh start adjustments for the elimination of Predecessor accumulated other comprehensive loss through Reorganization items, net.

4. REVENUE FROM CONTRACTS WITH CUSTOMERS

Our drilling contracts contain a lease component and we have elected to apply the practical expedient provided under ASC 842 to not separate the lease and non-lease components and apply the revenue recognition guidance in ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606). Our drilling service provided under each drilling contract is a single performance obligation satisfied over time and comprised of a series of

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The amount estimated for variable consideration is only recognized as revenue to the extent that it is probable that a significant reversal will not occur during the contract term. We have applied the optional exemption afforded in ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606), and have not disclosed the variable consideration related to our estimated future day rate revenues. The remaining duration of our drilling contracts based on those in place as of December 31, 2021 was between approximately 1 month and 3.5 years.

Day Rate Drilling Revenue

Our drilling contracts provide for payment on a day rate basis and include a rate schedule with higher rates for periods when the drilling rig is operating and lower rates or zero rates for periods when drilling operations are interrupted or restricted. The day rate invoiced to the customer is determined based on the varying rates applicable to specific activities performed on an hourly or other time increment basis. Day rate consideration is allocated to the distinct hourly or other time increment to which it relates within the contract term and is generally recognized consistent with the contractual rate invoiced for the services provided during the respective period. Invoices are typically issued to our customers on a monthly basis and payment terms on customer invoices are typically 30 days.

Mobilization / Demobilization Revenue

In connection with certain contracts, we receive lump-sum fees or similar compensation for the mobilization of equipment and personnel prior to the commencement of drilling services or the demobilization of equipment and personnel upon contract completion. Fees received for the mobilization or demobilization of equipment and personnel are included in Operating revenues. The costs incurred in connection with the mobilization and demobilization of equipment and personnel are included in Contract drilling expense.

120

Capital Upgrade / Contract Preparation Revenue

Contract Assets and Liabilities

The following table summarizes our contract assets and contract liabilities (in millions):


	Successor		Predecessor
	December 31, 2021		December 31, 2020
Current contract assets	$	0.3	$	1.4
Noncurrent contract assets	$	—	$	0.4
Current contract liabilities (deferred revenue)	$	45.8	$	57.6
Noncurrent contract liabilities (deferred revenue)	$	10.8	$	14.3

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Changes in contract assets and liabilities during the period are as follows (in millions):


	Contract Assets		Contract Liabilities
Balance as of December 31, 2020 (Predecessor)	$	1.8	$	71.9
Revenue recognized in advance of right to bill customer	2.3		—
Increase due to cash received	—		10.2
Decrease due to amortization of deferred revenue that was included in the beginning contract liability balance	—		(14.8)

Decrease due to transfer to receivables during the period	(1.6)		—
Fresh start accounting revaluation	(0.3)		(31.6)
Balance as of April 30, 2021 (Predecessor)	2.2		35.7
Balance as of May 1, 2021 (Successor)	2.2		35.7
Revenue recognized in advance of right to bill customer	2.5		—
Increase due to cash received	—		80.1

Decrease due to amortization of deferred revenue that was added during the period	—		(21.5)
Decrease due to transfer to receivables and payables during the period	(4.4)		(37.7)
Balance as of December 31, 2021 (Successor)	$	0.3	$	56.6

Deferred Contract Costs

Costs incurred for upfront rig mobilizations and certain contract preparations are attributable to our future performance obligation under each respective drilling contract. These costs are deferred and amortized on a straight-line basis over the contract term. Demobilization costs are recognized as incurred upon contract completion. Costs associated with the mobilization of equipment and personnel to more promising market areas without contracts are expensed as incurred. Deferred contract costs were included in Other current assets and Other assets on our Consolidated Balance Sheets and totaled $31.4 million and $13.8 million as of December 31, 2021 (Successor) and December 31, 2020 (Predecessor), respectively. For the Successor, during the eight months ended December 31, 2021, amortization of such costs totaled $22.0 million. For the Predecessor, during the four months ended April 30, 2021, the year ended December 31, 2020 and the year ended December 31, 2019, amortization of such costs totaled $7.6 million, $42.1 million and $42.1 million respectively.

Deferred Certification Costs

We must obtain certifications from various regulatory bodies in order to operate our drilling rigs and must maintain such certifications through periodic inspections and surveys. The costs incurred in connection with maintaining such certifications, including inspections, tests, surveys and drydock, as well as remedial structural work and other compliance costs, are deferred and amortized on a straight-line basis over the corresponding certification periods. Deferred regulatory certification and compliance costs were included in Other current assets and Other assets on our Consolidated Balance Sheets and totaled $3.3 million and $8.4 million as of December 31, 2021 (Successor) and December 31, 2020 (Predecessor), respectively. For the Successor, during the eight months ended December 31, 2021, amortization of such costs totaled $0.7 million. For the Predecessor, during the four months ended April 30, 2021, the year ended December 31, 2020 and the year ended December 31, 2019, amortization of these costs totaled $3.1 million, $8.9 million and $10.3 million respectively.

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Future Amortization of Contract Liabilities and Deferred Costs

Our contract liabilities and deferred costs are amortized on a straight-line basis over the contract term or corresponding certification period to Operating revenues and Contract drilling expense, respectively, with the exception of the contract liabilities related to our bareboat charter arrangements with ARO which would not be contractually payable until the end of the lease term or termination, if sooner. See "Note 6 - Equity Method Investment in ARO" for additional information on ARO and related arrangements. For the Successor, expected future amortization of our contract liabilities, or in the case of our contract liabilities related to our bareboat charter arrangements with ARO, the amount is reflected at the end of the lease term, and deferred costs recorded as of December 31, 2021 is set forth in the table below (in millions):


	2022		2023		2024		2025 & Thereafter		Total
Amortization of contract liabilities	$	45.8	$	7.8	$	1.2	$	1.8	$	56.6
Amortization of deferred costs	$	26.9	$	6.9	$	0.9	$	—	$	34.7

5. ROWAN TRANSACTION

On April 11, 2019 (the "Transaction Date"), we completed our combination with Rowan Companies Limited (formerly Rowan Companies plc) ("Rowan") pursuant to the Transaction Agreement (the "Rowan Transaction"). We were considered to be the acquirer for accounting purposes. As a result, Rowan's assets acquired and liabilities assumed in the Rowan Transaction were recorded at their estimated fair values ~~and tax bases~~as of the Transaction Date under the acquisition method of accounting. When the fair value of the net assets acquired exceeds the consideration transferred in an acquisition, the difference is recorded as a bargain purchase gain in the period in which the transaction occurs. As of March 31, 2020, we completed our fair value assessments of assets acquired and liabilities assumed. Additionally, the interaction of our and Atwood's tax attributes that impacted the deferred taxes of the combined entity were also recognized as part of acquisition accounting. As of the Merger Date, an increase of $2.5 million to Atwood’s net deferred tax liability was recognized.

~~Deferred tax~~The provisional amounts recorded for assets and liabilities ~~recognized in connection with the Atwood Merger~~acquired were ~~measured at rates enacted~~based on preliminary estimates of their fair values as of the ~~Merger Date. Tax rate changes, or any deferred tax adjustments for new tax legislation, following the Merger~~Transaction Date ~~including the recently enacted U.S. tax reform, are reflected in our operating results in the period in which the change in tax laws or rate is enacted.~~

~~Intangible Assets~~ and ~~Liabilities~~

~~We recorded intangible assets totaling $30.1 million, inclusive of certain~~ measurement period adjustments were recorded throughout the measurement period as provisional amounts were finalized.

Consideration

As a result of the ~~Merger Date~~Rowan Transaction, Rowan shareholders received 2.75 Legacy Valaris Class A Ordinary shares for each share of Rowan Class A ordinary share, representing ~~the estimated fair~~a value of ~~Atwood's firm drilling contracts~~$43.67 per Rowan share based on a closing price of $15.88 per Legacy Valaris share on April 10, 2019, the last trading day before the Transaction Date. Total consideration delivered in the Rowan Transaction consisted of 88.3 million Legacy Valaris shares with ~~favorable contract terms compared to then-market day rates for comparable drilling rigs.~~

~~Operating revenues were net~~an aggregate value of ~~$11.4 million and $16.1 million~~$1.4 billion, inclusive of ~~asset amortization during the years ended December 31, 2018 and 2017, respectively. The remaining balance of~~ $2.6 ~~million was included in other assets on our consolidated balance sheet as of December 31, 2018 and will be amortized to operating revenue during 2019.~~

~~We recorded intangible liabilities of $60.0~~ million for the estimated fair value of ~~unfavorable drillship construction contracts, which~~replacement employee equity awards. Upon closing of the Rowan Transaction, we effected a consolidation (being a reverse stock split under English law) where every four existing Class A ordinary shares, each with a nominal value of $0.10, were ~~determined~~consolidated into one Class A ordinary share, each with a nominal value of $0.40 (the "Reverse Stock Split"). All Legacy Valaris share and per share data included in this report have been retroactively adjusted to reflect the Reverse Stock Split.

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Bargain Purchase Gain (Predecessor)

The estimated fair values assigned to assets acquired net of liabilities assumed exceeded the consideration transferred, resulting in a bargain purchase gain at the Transaction date of $712.8 million primarily driven by ~~comparing~~ the ~~firm obligations~~decline in our Legacy Valaris share price from $33.92 to $15.88 between the last trading day prior to the announcement of the Rowan Transaction and the Transaction Date. Measurement period adjustments were recorded to reflect new information obtained about facts and circumstances existing as of the Transaction Date and did not result from subsequent intervening events. The measurement period adjustments reflect changes in the estimated fair values of certain assets and liabilities, primarily related to long-lived assets, deferred income taxes and uncertain tax positions. The adjustments recorded resulted in a $75.8 million decline to the bargain purchase gain during 2019, resulting in a net bargain purchase gain of $637.0 million included in Other, net, in our Consolidated Statements of Operations for the ~~remaining construction of ENSCO DS-13 and ENSCO DS-14~~year ended December 31, 2019 (Predecessor). Additionally, adjustments resulted in a $6.3 million decline to the ~~estimated current market rates~~bargain purchase gain during the first quarter of 2020, which is included in Other, net, in our Consolidated Statements of Operations for the ~~construction~~year ended December 31, 2020 (Predecessor).

Transaction-related costs (Predecessor)

Transaction-related costs were expensed as incurred and consisted of ~~a comparable drilling rig.~~ various advisory, legal, accounting, valuation and other professional or consulting fees totaling $18.0 million for the year ended December 31, 2019 (Predecessor). These costs were included in General and administrative expense in our Consolidated Statements of Operations.

Revenues and Losses of Rowan

The ~~liabilities will be amortized over~~amount of revenues and net losses of Rowan that are included from the ~~estimated life~~Transaction Date to December 31, 2019 in the Company's Consolidated Statements of ~~ENSCO DS-13~~Operations for the Year ended December 31, 2019 (Predecessor) were $448.0 million and ~~ENSCO DS-14 as a reduction of depreciation expense beginning on the date the rig is placed into service.~~$122.7 million, respectively.

Unaudited Pro Forma Impact of the ~~Atwood Merger~~Rowan Transaction (Predecessor)

The following unaudited supplemental pro forma results present consolidated information as if the ~~Atwood Merger~~Rowan Transaction was completed on January 1, ~~2016.~~2019. The pro forma results include, among others, ~~(i)~~(1) the amortization associated with acquired intangible assets and liabilities, ~~(ii)~~(2) a reduction in depreciation expense for adjustments to property and equipment, (3) the amortization of premiums and ~~(iii) a reduction~~discounts recorded on Rowan's debt, (iv) removal of the historical amortization of unrealized gains and losses related to ~~interest expense resulting from~~Rowan's pension plans and (v) the ~~retirement~~amortization of ~~Atwood's revolving credit facility~~basis differences in assets and ~~6.50% senior notes due 2020.~~liabilities of ARO. The pro forma results do not include any potential synergies or non-recurring charges ~~resulting~~that may result directly from the ~~Atwood Merger.~~Rowan Transaction.


(unaudited) (in millions, except per share amounts)	Twelve Months Ended December 31, 2019(1)
Revenues	$	2,240.5
Net loss	$	(997.8)
Earnings per share - basic and diluted	$	(3.82)

(in millions, except per share amounts) Twelve Months Ended (Unaudited)

2017⁽¹⁾
2016
Revenues $ 2,226.0
$ 3,622.1
Net income (loss) (347.0 ) 1,284.9
Earnings (loss) per share - basic and diluted (.80 ) 3.18

⁽¹⁾Pro forma net ~~income~~loss and ~~earnings~~loss per share were adjusted to exclude an aggregate ~~$80.7~~$108.1 million of ~~merger-related~~transaction related and integration costs incurred during the year ended December 31, 2019. Additionally, pro forma net loss and loss per share exclude the measurement period adjustments and estimated gain on bargain purchase of $637.0 million recognized during the year ended December 31, 2019 (Predecessor).

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6. EQUITY METHOD INVESTMENT IN ARO

Background

ARO, a company that owns and operates offshore drilling rigs in Saudi Arabia, was formed and commenced operations in 2017 pursuant to the terms of an agreement entered into by ~~Ensco~~Rowan and ~~Atwood~~Saudi Aramco to create a 50/50 joint venture ("Shareholder Agreement"). Pursuant to the Rowan Transaction, Valaris acquired Rowan's interest in ARO making Valaris a 50% partner. As of December 31, 2021, ARO owns 7 jackup rigs, has ordered 2 newbuild jackup rigs and leases 7 rigs from us through bareboat charter arrangements (the "Lease Agreements") whereby substantially all operating costs are incurred by ARO. At December 31, 2021, all of the leased rigs were operating under three-year drilling contracts, or related extensions, with Saudi Aramco. The 7 rigs owned by ARO, previously purchased from Rowan and Saudi Aramco, are currently operating under contracts with Saudi Aramco for an aggregate 15 years provided that the rigs meet the technical and operational requirements of Saudi Aramco.

The Lease Agreements with ARO originally provided for a fixed per day bareboat charter amount over the term of the lease, calculated based on a split of projected earnings over the lease term. However, in December 2020, the Shareholder Agreement was amended ("December Amendment") such that the per day bareboat charter amount in the associated lease agreements is subject to adjustment based on actual performance of the respective rig and that a cash payment based on actual results will be due at the end of the lease term or, if sooner, termination. The Company, as lessor, accounts for these arrangements as operating leases. The December Amendment resulted in a modification of the leases and as a result we began accounting for lease revenue using the variable rate as opposed to a fixed rental amount. Our results of operations for the year ended December 31, 2020 (Predecessor) reflect the impact of the lease modification on our rental revenues to reflect cumulative results through that period.

In connection with our 50/50 joint venture, we have a potential obligation to fund ARO for newbuild jackup rigs. ARO has plans to purchase 20 newbuild jackup rigs over an approximate 10-year period. In January 2020, ARO ordered the first 2 newbuild jackups, each with a shipyard price of $176.0 million. 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. The joint venture partners intend for the newbuild jackup rigs to be financed out of available cash from ARO's operations and/or funds available from third-party debt financing. ARO paid a 25% down payment from cash on hand for each of the newbuilds ordered in January 2020 and is actively exploring financing options for remaining payments due upon delivery. In the event ARO has insufficient cash from operations or is unable to obtain third-party financing, each partner may periodically be required to make additional capital contributions to ARO, up to a maximum aggregate contribution of $1.25 billion from each partner to fund the newbuild program. Each partner's commitment shall be reduced by the actual cost of each newbuild rig, on a proportionate basis.

The joint venture partners agreed that Saudi Aramco, as a customer, will provide drilling contracts to ARO in connection with the acquisition of the newbuild rigs. The initial contracts provided by Saudi Aramco for each of the newbuild rigs will be for an eight-year term. The day rate for the initial contracts for each newbuild rig will be determined using a pricing mechanism that targets a six-year payback period for construction costs on an EBITDA basis. The initial eight-year contracts will be followed by a minimum of another eight years of term, re-priced in three-year intervals based on a market pricing mechanism.

Upon establishment of ARO, Rowan entered into (1) an agreement to provide certain back-office services for a period of time until ARO develops its own infrastructure (the "Transition Services Agreement"), and (2) an agreement to provide certain Rowan employees through secondment arrangements to assist with various onshore and offshore services for the benefit of ARO (the "Secondment Agreement"). These agreements remained in place subsequent to the Rowan Transaction. Pursuant to these agreements, we or our seconded employees provide various services to ARO, and in return, ARO provides remuneration for those services. From time to time, we may also sell equipment or supplies to ARO. During the quarter ended June 30, 2020, almost all remaining employees

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seconded to ARO became employees of ARO. Additionally, our services to ARO under the Transition Services Agreement were completed as of December 31, 2020.

Summarized Financial Information

The operating revenues of ARO presented below reflect revenues earned under drilling contracts with Saudi Aramco for the 7 ARO-owned jackup rigs as well as the rigs leased from us.

Contract drilling expense is inclusive of the bareboat charter fees for the rigs leased from us. Cost incurred under the Secondment Agreement are included in Contract drilling expense and General and administrative, depending on the function to which the seconded employee's service related. Substantially all costs incurred under the Transition Services Agreement are included in General and administrative. See additional discussion below regarding these related-party transactions.

Summarized financial information for ARO is as follows (in millions):


	Year Ended December 31, 2021		Year Ended December 31, 2020		April 11, 2019 - December 31, 2019
Revenues	$	470.6	$	549.4	$	410.5
Operating expenses
Contract drilling (exclusive of depreciation)	362.3		388.2		280.2
Depreciation	65.2		54.8		40.3
General and administrative	17.8		24.2		27.1
Operating income	25.3		82.2		62.9
Other expense, net	13.4		26.7		28.6
Provision for income taxes	7.9		14.2		9.7
Net income	$	4.0	$	41.3	$	24.6


	December 31, 2021		December 31, 2020
Cash and cash equivalents	$	270.8	$	237.7
Other current assets	135.0		120.9
Non-current assets	775.8		804.0
Total assets	$	1,181.6	$	1,162.6

Current liabilities	$	79.9	$	70.8
Non-current liabilities	956.7		950.8
Total liabilities	$	1,036.6	$	1,021.6

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Equity in Earnings of ARO

We account for our interest in ARO using the equity method of accounting and only recognize our portion of ARO's net income, adjusted for basis differences as discussed below, which is included in Equity in earnings (losses) of ARO in our Consolidated Statements of Operations. ARO is a variable interest entity; however, we are not the primary beneficiary and therefore do not consolidate ARO. Judgments regarding our level of influence over ARO included considering key factors such as each partner's ownership interest, representation on the board of managers of ARO and ability to direct activities that most significantly impact ARO's economic performance, including the ability to influence policy-making decisions. Our investment in ARO would be assessed for impairment if there are changes in facts and circumstances that indicate a loss in value may have occurred. If a loss were deemed to have occurred and this loss was determined to be other than temporary, the carrying value of our investment would be written down to fair value and an impairment recorded.

We have an equity method investment in ARO that was recorded at its estimated fair value as of the Transaction Date. We computed the difference between the fair value of ARO's net assets and the carrying value of those net assets in ARO's U.S. GAAP financial statements ("basis differences") on that date. These basis differences primarily relate to ARO's long-lived assets and the recognition of intangible assets associated with certain of ARO's drilling contracts that were determined to have favorable terms as of the Transaction Date. Additionally, in fresh start accounting, we have recorded our investment in ARO at its estimated fair value as of the Effective Date. Basis differences on that date primarily related to ARO's long-lived assets.

Basis differences are amortized over the remaining life of the assets or liabilities to which they relate and are recognized as an adjustment to the equity in earnings (losses) of ARO in our Consolidated Statements of Operations. The amortization of those basis differences are combined with our 50% interest in ARO's net income. A reconciliation of those components is presented below (in millions):


	Successor		Predecessor
	Eight Months Ended December 31, 2021		Four Months Ended April 30, 2021		Year Ended December 31, 2020		April 11, 2019 - December 31, 2019
50% interest in ARO net income (loss)	$	(4.0)	$	6.0	$	20.7	$	12.3
Amortization of basis differences	10.1		(2.9)		(28.5)		(24.9)
Equity in earnings (losses) of ARO	$	6.1	$	3.1	$	(7.8)	$	(12.6)

Related-Party Transactions

Revenues recognized by us related to the Lease Agreements, Transition Services Agreement and Secondment Agreement are as follows (in millions):


	Successor		Predecessor
	Eight Months Ended December 31, 2021		Four Months Ended April 30, 2021		Year Ended December 31, 2020		April 11, 2019 - December 31, 2019
Lease revenue	$	35.4	$	21.7	$	52.2	$	58.2
Secondment revenue	1.5		1.1		21.6		49.9
Transition Services revenue	—		—		1.3		17.3
Total revenue from ARO (1)	$	36.9	$	22.8	$	75.1	$	125.4

(1) All of the revenues presented above are included in our Other segment in our segment disclosures. See "Note 1 7- Segment Information" for additional information.

127

Amounts receivable from ARO related to the items above totaled $12.1 million and $21.6 million as of December 31, 2021 (Successor) and December 31, 2020 (Predecessor), respectively, and are included in Accounts receivable, net, on our Consolidated Balance Sheets.

We had $10.8 million and $38.3 million of contract liabilities and Accounts payable, respectively, related to the Lease Agreements as of December 31, 2021 (Successor). As of December 31, 2020 (Predecessor), we had $30.9 million of contract liabilities related to the Lease Agreements and no Accounts payable to ARO. The per day bareboat charter amount in the Lease Agreements is subject to adjustment based on actual performance of the respective rig and as such contract liabilities related to the Lease Agreements are subject to adjustment during the lease term. Upon completion of the lease term, such amount becomes a payable to or a receivable from ARO.

During 2017 and 2018, Rowan contributed cash to ARO in exchange for 10-year shareholder notes receivable based on a one-year LIBOR rate, set as of the ~~$140.2~~end of the year prior to the year applicable, plus 2 percent. As of December 31, 2021 (Successor) and December 31, 2020 (Predecessor) the carrying amount of the long-term notes receivable from ARO was $249.1 million ~~estimated bargain purchase gain.~~and $442.7 million respectively. The notes receivable were adjusted to fair value as of the Effective Date. The discount to the principal amount of $442.7 million is being amortized using the effective interest method to interest income over the remaining terms of the notes. The Shareholders’ Agreement prohibits the sale or transfer of the shareholder note to a third-party, except in certain limited circumstances. During the year ended December 31, 2020 (Predecessor), we recorded $10.2 million of employee benefit obligations against our long-term notes receivable from ARO. Interest is recognized as interest income in our Consolidated Statements of Operations. During the eight months ended December 31, 2021 (Successor), interest totaled $27.8 million of which $20.8 million pertains to non-cash amortization of discount on the shareholder notes. During the four months ended April 30, 2021 (Predecessor), interest totaled $3.5 million. Interest totaled $18.3 million for the year ended December 31, 2020 (Predecessor) and $16.8 million for the period from April 11, 2019 - December 31, 2019 (Predecessor). Interest amounts due were collected prior to the end of the year and we had no interest receivable from ARO as of December 31, 2021 (Successor) and December 31, 2020 (Predecessor).

Maximum Exposure to Loss

The following table summarizes the total assets and liabilities as reflected in our Consolidated Balance Sheets as well as our maximum exposure to loss related to ARO (in millions). Our maximum exposure to loss is limited to (1) our equity investment in ARO; (2) the carrying amount of our shareholder notes receivable; and (3) other receivables and contract assets from ARO, partially offset by contract liabilities as well as payables to ARO.


	Successor		Predecessor
	December 31, 2021		December 31, 2020
Total assets	$	348.1	$	585.2
Less: total liabilities	49.1		30.9
Maximum exposure to loss	$	299.0	$	554.3

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7. FAIR VALUE MEASUREMENTS

The following fair value hierarchy table categorizes information regarding our ~~net~~ financial assets and liabilities measured at fair value on a recurring basis ~~as of~~ ~~December 31, 2018~~ ~~and~~ ~~2017~~(in millions):


	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total





As of December 31, 2020
(Predecessor)
Supplemental executive retirement plan assets	$	22.6	$	—	$	—	$	22.6

Total financial assets	$	22.6	$	—	$	—	$	22.6

Quoted Prices in
Active Markets
for
Identical Assets
(Level 1)

Significant
Other
Observable
Inputs
(Level 2)

Significant
Unobservable
Inputs
(Level 3)
Total
As of December 31, 2018

Supplemental executive retirement plan assets $ 27.2
$ —
$ —
$ 27.2
Total financial assets 27.2
—
—
27.2
Derivatives, net —
(10.7 ) —
(10.7 )
Total financial liabilities $ —
$ (10.7 ) $ —
$ (10.7 )
As of December 31, 2017

Supplemental executive retirement plan assets $ 30.9
$ —
$ —
$ 30.9
Derivatives, net —
6.8
—
6.8
Total financial assets $ 30.9
$ 6.8
$ —
$ 37.7

Supplemental Executive Retirement ~~Plans~~Plan Assets

Our ~~Ensco~~ supplemental executive retirement plans (the ~~"SERPs"~~"SERP") are non-qualified plans that ~~provide for~~provided eligible employees an opportunity to defer a portion of their compensation for use after retirement. The SERP was frozen to the entry of new participants in November 2019 and to future compensation deferrals as of January 1, 2020. Assets held in a rabbi trust maintained for the SERP were marketable securities measured at fair value on a recurring basis using Level 1 inputs and were included in ~~other~~Other assets, net, on our ~~consolidated balance sheets~~Consolidated Balance Sheet as of December 31, ~~2018~~ ~~and~~ ~~2017~~2020 (Predecessor). The fair value measurements of assets held in the SERP were based on quoted market prices. Pursuant to the plan of reorganization, the assets held in the rabbi trust maintained for the SERP were liquidated upon the Effective Date and used to satisfy the claims of creditors. Effective July 1, 2021, we amended the SERP to provide for quarterly credits of an interest equivalent based upon the rate of interest paid on ten-year United States treasury notes in November of the immediately preceding calendar year and the participant plan balances as of the first day of such quarter. Net unrealized ~~losses~~gains of ~~$700,000 and gains~~ of ~~$4.5~~$1.2 million, $3.2 million and ~~$1.8~~$5.0 million from marketable securities held in our SERP were included in ~~other,~~Other, net, in our ~~consolidated statements~~Consolidated Statements of ~~operations~~Operations for the ~~years~~four months ended April 30, 2021 (Predecessor), the year ended December 31, ~~2018, 2017~~2020 (Predecessor) and ~~2016~~the year ended December 31, 2019 (Predecessor), respectively.

~~Derivatives~~

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~~Our derivatives were measured at fair value on a recurring basis using Level 2 inputs as of~~ ~~December 31, 2018~~ ~~and~~ ~~2017~~. See "Note 7 - Derivative Instruments" for additional information on our derivatives, including a description of our foreign currency hedging activities and related methodologies used to manage foreign currency exchange rate risk. The fair value measurements of our derivatives were based on market prices that are generally observable for similar assets or liabilities at commonly quoted intervals.

Other Financial Instruments

The carrying values and estimated fair values of our debt instruments ~~as of~~ ~~December 31, 2018~~ ~~and~~ ~~2017~~were as follows (in millions):


	Successor				Predecessor
	December 31, 2021				December 31, 2020
	Carrying Value		Estimated Fair Value		Carrying Value (1)		Estimated Fair Value
Secured first lien notes due 2028	$	545.3	$	575.7	$	—	$	—
6.875% Senior notes due 2020	—		—		122.9		8.6
4.70% Senior notes due 2021	—		—		100.7		4.5
4.875% Senior notes due 2022	—		—		620.8		32.9
3.00% Exchangeable senior notes due 2024 (2)	—		—		849.5		76.5
4.50% Senior notes due 2024	—		—		303.4		13.7
4.75% Senior notes due 2024	—		—		318.6		18.8
8.00% Senior notes due 2024	—		—		292.3		12.9
5.20% Senior notes due 2025	—		—		333.7		12.7
7.375% Senior notes due 2025	—		—		360.8		20.9
7.75% Senior notes due 2026	—		—		1,000.0		44.0
7.20% Debentures due 2027	—		—		112.1		5.7
7.875% Senior notes due 2040	—		—		300.0		21.0
5.40% Senior notes due 2042	—		—		400.0		23.6
5.75% Senior notes due 2044	—		—		1,000.5		38.0
5.85% Senior notes due 2044	—		—		400.0		26.0
Amounts borrowed under Revolving Credit Facility (3)	—		—		581.0		581.0
Total debt	$	545.3	$	575.7	$	7,096.3	$	940.8
Less : Liabilities Subject to Compromise (4)	—		—		7,096.3		940.8

Total long-term debt	$	545.3	$	575.7	$	—	$	—

(1) The carrying amount of debt instruments at December 31, 2020 represents the Predecessor's outstanding borrowings as of the Petition Date and are classified as Liabilities Subject to Compromise in our Consolidated Balance Sheet as of December 31, 2020.

(2) For the Predecessor, the 3% exchangeable senior notes due 2024 (the "2024 Convertible Notes") were exchangeable into cash, our Class A ordinary shares or a combination thereof. The 2024 Convertible Notes were separated, at issuance, into their liability and equity components on our Consolidated Balance Sheet. The equity component was initially recorded to additional paid-in capital and as a debt discount and the discount was being amortized to interest expense over the life of the instrument. The carrying amount at December 31, 2020 represented the aggregate principal amount of these notes as of the Petition Date and was classified as Liabilities Subject to Compromise in our Consolidated Balance Sheet as of December 31, 2020. The Predecessor discontinued accruing interest on these notes as of the Petition Date. The equity component was $220.0 million and was classified as Additional Paid-in Capital as of December 31, 2020. On the Effective Date, in accordance with the plan of reorganization, all outstanding obligations under the 2024 Convertible Notes were cancelled and the equity component was written off to retained earnings.

(3) In addition to the amount borrowed above, the Predecessor had $27.0 million in undrawn letters of credit issued under the Revolving Credit Facilityas of December 31, 2020. On the Effective Date, in accordance with the plan of reorganization, all undrawn letters of credit issued under the Revolving Credit Facility were collateralized pursuant to the terms of the RevolvingCredit Facility.

130

December 31, 2018 December 31, 2017

Carrying
Value

Estimated
  Fair
Value

Carrying
Value

Estimated
  Fair
Value
8.50% Senior notes due 2019⁽¹⁾
$ —
$ —
$ 251.4
$ 252.9
6.875% Senior notes due 2020⁽¹⁾
127.5
121.6
477.9
473.1
4.70% Senior notes due 2021⁽¹⁾
112.7
101.8
267.1
265.3
3.00% Exchangeable senior notes due 2024 ⁽²⁾
666.8
575.5
635.7
757.1
4.50% Senior notes due 2024 619.8
405.2
619.3
527.1
8.00% Senior notes due 2024 337.0
273.7
337.9
333.8
5.20% Senior notes due 2025 664.4
443.9
663.6
571.4
7.75% Senior notes due 2026 985.0
725.5
—
—
7.20% Debentures due 2027 149.3
109.1
149.3
141.9
7.875% Senior notes due 2040 375.0
223.2
376.7
258.8
5.75% Senior notes due 2044 972.9
566.3
971.8
690.4
Total $ 5,010.4
$ 3,545.8
$ 4,750.7
$ 4,271.8
(4)     As discussed in “Note 2 - Chapter 11 Proceedings” and “Note 3 - Fresh Start Accounting,” since the Petition Date and through the Effective Date, the Company operated as a debtor-in-possession under the jurisdiction of the Bankruptcy Court and in accordance with the provisions of the Bankruptcy Code. Accordingly, all of our long-term debt obligations were presented as Liabilities Subject to Compromise in our Consolidated Balance Sheet as of December 31, 2020 (Predecessor). All unamortized debt discounts, premiums or issuance costs related to our long-term debt obligations were written off to reorganization items as of the Petition Date in 2020. Additionally, we discontinued accruing interest on our indebtedness as of the Petition Date.


⁽¹⁾	The decline in the carrying value of our 8.50% senior notes due 2019, 6.875% senior notes due 2020 and our 4.70% senior notes due 2021 from December 31, 2017 to December 31, 2018 is primarily due to debt repurchases and redemptions as discussed in "Note 6 - Debt".

⁽²⁾

Our 3.00% exchangeable senior notes due 2024 (the "2024 Convertible Notes") were issued with a conversion feature. The 2024 Convertible Notes were separated into their liability and equity components on our consolidated balance sheet. The equity component was initially recorded to additional paid-in capital and as a debt discount, which will be amortized to interest expense. Excluding the unamortized discount, the carrying value of the 2024 Convertible Notes was $836.3 million and $834.0 million as of December 31, 2018 and 2017. See "Note 6 - Debt" for additional information on this issuance.

The estimated fair values of ~~our senior notes~~the Successor's First Lien Notes and ~~debentures~~the Predecessor's Senior Notes were determined using quoted market ~~prices.~~ prices, which are level 1 inputs. As of December 31, 2021 (Successor), the estimated fair value of our long-term notes receivable from ARO was $266.7 million and was estimated by using an income approach to value the forecasted cash flows attributed to the notes receivable using a discount rate based on comparable yield with a country-specific risk premium.

The estimated fair values of our cash and cash equivalents, ~~short-term investments, receivables,~~restricted cash, accounts receivable and trade payables ~~and other liabilities~~ approximated their carrying values as of December 31, ~~2018~~2021 (Successor) and ~~2017.~~December 31, 2020 (Predecessor).

5.8. PROPERTY AND EQUIPMENT

Property and equipment ~~as of December 31, 2018 and 2017~~ consisted of the following (in millions):


						Successor		Predecessor
	2018		2017			December 31, 2021		December 31, 2020
Drilling rigs and equipment	$	14,542.5	$	12,272.4	Drilling rigs and equipment	$	886.9	$	12,584.4
Work-in-progress	779.2		2,876.3		Work-in-progress	35.6		446.1
Other	195.3		183.4		Other	34.5		178.8
	$	15,517.0	$	15,332.1		$	957.0	$	13,209.3

Concurrent with our emergence from bankruptcy, we adopted fresh start accounting and adjusted the carrying value of our property and equipment to estimated fair value which included an adjustment to reconcile to our reorganization value. See "Note 3 - Fresh Start Accounting" for more information.

Work-in-progress as of December 31, ~~2018~~2020 (Predecessor) primarily consisted of ~~$416.8~~approximately $418 million related to the construction of ultra-deepwater drillships ~~ENSCO~~VALARIS DS-13 and ~~ENSCO DS-14 and $352.4 million related~~VALARIS DS-14.

Impairment of Long-Lived Assets

Predecessor

During the four months ended April 30, 2021, we recorded an aggregate pre-tax, non-cash impairment with respect to ~~the construction~~certain floaters of ~~ENSCO 123, an ultra-premium harsh environment jackup rig.~~

Work-in-progress as of December 31, 2017 primarily consisted of $2.0 billion related to the construction of ultra-deepwater drillships ENSCO DS-9, ENSCO DS-10, ENSCO DS-13 and ENSCO DS-14, $423.6 million related to the construction of premium jackup rigs ENSCO 140 and ENSCO 141 and $321.6 million related to the construction of ENSCO 123, an ultra-premium harsh environment jackup rig.

~~ENSCO DS-9, ENSCO DS-10, ENSCO 140 and ENSCO 141 were placed into service and reclassified from work-in-progress to drilling rigs and equipment during~~$756.5 million. During the year ended December 31, ~~2018.~~2020 and the year ended December 31, 2019, we recorded an aggregate pre-tax, non-cash impairment with respect to certain floaters, jackups and spare equipment of $3.6 billion and $98.4 million, respectively. These pre-tax non-cash impairments are included in Loss on impairment in our Consolidated Statements of Operations.

~~Impairment of Long-Lived Assets~~

131

Assets held-for-use

On a quarterly basis, we evaluate the carrying value of our property and equipment to identify events or changes in circumstances ("triggering events") that indicate the carrying value may not be recoverable.

During 2018, we recorded a pre-tax, non-cash loss on impairment of $40.3 million related to one older non-core jackup rig. During the fourth quarter, we concluded that a triggering event occurred due to the expiration of a legacy higher day rate contract resulting in the performance of a recoverability test. We determined that the estimated undiscounted cash flows over the remaining useful life of the rig were not sufficient to recover the rig’s carrying value and concluded the rig was impaired as of December 31, 2018.

During 2017, we recognized a pre-tax, non-cash loss on impairment of $182.9 million related to older, less capable, non-core assets in our fleet. During the fourth quarter, we determined that the remaining useful life of certain non-core rigs would not extend substantially beyond their current contracts, resulting in triggering events and the performance of recoverability tests. Our estimates of undiscounted cash flows over the revised estimated remaining useful lives were not sufficient to recover each asset’s carrying value. Accordingly, we concluded that two semisubmersibles and one jackup were impaired as of December 31, 2017.

For rigs whose carrying values ~~were~~are determined not to be recoverable, ~~during 2018 and 2017,~~ we ~~recorded~~record an impairment for the difference between their fair values and carrying values.

Predecessor

During the first quarter of 2021, as a result of challenging market conditions for certain of our floaters, we revised our near-term operating assumptions which resulted in a triggering event for purposes of evaluating impairment. We determined that the estimated undiscounted cash flows were not sufficient to recover the carrying values for certain rigs and concluded they were impaired as of March 31, 2021.

Based on the asset impairment analysis performed as of March 31, 2021, we recorded a pre-tax, non-cash loss on impairment in the first quarter for certain floaters totaling $756.5 million. We measured the fair ~~values~~value of these ~~rigs~~assets to be $26.0 million at the time of impairment by applying either an income approach, using projected discounted cash ~~flows.~~flows or estimated sales price. These valuations were based on unobservable inputs that require significant judgments for which there is limited information, including, in the case of an income approach, assumptions regarding future day rates, utilization, operating costs and capital requirements. ~~Forecasted~~In instances where we applied an income approach, forecasted day rates and utilization took into account current market conditions and our anticipated business outlook.

IfDuring the first quarter of 2020, the COVID-19 global ~~economy,~~pandemic and the response thereto negatively impacted the macro-economic environment and global economy. Global oil demand fell sharply at the same time global oil supply increased as a result of certain oil producers competing for market share which lead to a supply glut. As a consequence, Brent crude oil fell from around $60 per barrel at year-end 2019 to around $20 per barrel as of mid-April 2020. These adverse changes and impacts to our ~~overall business outlook and/or~~customer's capital expenditure plans in the first quarter resulted in further deterioration in our ~~expectations regarding~~forecasted day rates and utilization for the ~~marketability~~remainder of ~~one or more of our drilling rigs deteriorate further,~~2020 and beyond. As a result, we ~~may conclude~~concluded that a triggering event ~~has~~had occurred, and ~~perform~~we performed a fleet-wide recoverability ~~test~~test. We determined that ~~could lead~~our estimated undiscounted cash flows were not sufficient to recover the carrying values of certain rigs and concluded they were impaired as of March 31, 2020.

Based on the asset impairment analysis performed as of March 31, 2020, we recorded a ~~material~~pre-tax, non-cash loss on impairment in the first quarter with respect to certain floaters, jackups and spare equipment totaling $2.8 billion. We measured the fair value of these assets to be $72.3 million at the time of impairment by applying either an income approach, using projected discounted cash flows, or estimated sales price. These valuations were based on unobservable inputs that require significant judgments for which there is limited information, including, in the case of an income approach, assumptions regarding future day rates, utilization, operating costs and capital requirements. In instances where we applied an income approach, forecasted day rates and utilization took into account then current market conditions and our anticipated business outlook at that time, both of which had been impacted by the adverse changes in the business environment observed during the first quarter of 2020.

During the second quarter of 2020, given the anticipated sustained market impacts arising from the decline in oil price and demand late in the first quarter, we revised our long-term operating assumptions which resulted in a triggering event for purposes of evaluating impairment and we performed a fleet-wide recoverability test. As a result, we recorded a pre-tax, non-cash impairment with respect to 2 floaters and spare equipment totaling $817.3 million. We measured the fair value of these assets to be $69.0 million at the time of impairment by applying an income approach or estimated scrap value. These valuations were based on unobservable inputs that require significant judgments for which there is limited information including, in the case of the income approach, assumptions regarding future day rates, utilization, operating costs and capital requirements.

132

During 2019, together with the Rowan Transaction, and as a result of the evaluation of the strategy of the combined fleet, we determined that a triggering event occurred resulting in the performance of a fleet-wide recoverability test. We determined that estimated undiscounted cash flows were sufficient to cover the rigs carrying values and concluded that 0 impairments were necessary.

Assets held-for-sale and Assets sold

Our business strategy has been to focus on ultra-deepwater floater and premium jackup operations and de-emphasize other assets and operations that are not part of our long-term strategic plan or that no longer meet our standards for economic returns. We continue to focus on our fleet management strategy in light of the composition of our rig fleet. While taking into account certain restrictions on the sales of assets under our Indenture dated April 30, 2021 (the “Indenture”), as part of our strategy, we may act opportunistically from time to time to monetize assets to enhance stakeholder value and improve our liquidity profile, in addition to reducing holding costs by selling or disposing of lower-specification or non-core rigs. To this end, we continually assess our rig portfolio and actively work with our rig broker to market certain rigs. See “Note 9 – Debt" for additional details on restrictions on the sales of assets.

On a quarterly basis, we assess whether any rig meets the criteria established for held-for-sale classification on our balance sheet. All rigs classified as held-for-sale are recorded at fair value, less costs to sell. We measure the fair value of our assets held-for-sale by applying a market approach based on unobservable third-party estimated prices that would be received in exchange for the assets in an orderly transaction between market participants or a negotiated sales price. We reassess the fair value of our held-for-sale assets on a quarterly basis and adjust the carrying value, as necessary.

Successor

In accordance with our business strategy described above, we sold VALARIS 22, VALARIS 37, VALARIS 100 and VALARIS 142, resulting in a pre-tax gain of $20.7 million during the eight months ending December 31, 2021 (Successor).

Predecessor

During the second quarter of 2020, we classified the following rigs as held-for-sale: VALARIS 8500, VALARIS 8501, VALARIS 8502, VALARIS DS-3, VALARIS DS-5, VALARIS DS-6 and VALARIS 105. The carrying value of these rigs was reduced to fair value, less costs to sell, based on their estimated sales price, and we recorded a pre-tax, non-cash loss on impairment totaling $15.0 million. These rigs were subsequently sold during the third quarter of 2020. During the third quarter of 2020, we classified VALARIS 8504, VALARIS 84 and VALARIS 88 as held-for-sale. The fair value, less costs to sell, based on each rig's estimated sales price, was in excess of the respective carrying value. As a result, we concluded that there was 0 impairment of these rigs. These rigs were sold during the fourth quarter of 2020. During the fourth quarter of 2020, we classified our Australia office building as held-for-sale. The fair value, less cost to sale, of this asset was determined to be in excess of the carrying value and we concluded that there was 0 impairment for the asset.

Our Australia office building had a remaining aggregate carrying value of $2.3 million and is included in Other current assets, on our Consolidated Balance Sheet as of December 31, 2020. The office was subsequently sold in the first quarter of 2021 and we recognized an immaterial pre-tax gain during the four months ended April 30, 2021 (Predecessor).

During the third quarter of 2019, we decided to retire VALARIS 5006 and classified the rig as held-for-sale. We recognized a pre-tax, non-cash loss on impairment of $88.2 million, which represented the difference between the carrying value of the rig and related assets and their estimated fair value, less costs to sell. We subsequently sold the rig during the fourth quarter of 2019.

133

During the fourth quarter of 2019, we classified VALARIS 6002, VALARIS 68 and VALARIS 70 as held-for-sale. With the exception of VALARIS 70, we determined that the fair value, less costs to sell, based on each rig's estimated sales price, was in excess of the respective carrying value. Therefore, we concluded that there was 0 impairment for VALARIS 6002 and VALARIS 68. For VALARIS 70, we recognized a pre-tax impairment charge of $10.2 million. VALARIS 6002 and VALARIS 68 were subsequently sold in ~~future periods.~~the first quarter of 2020 and VALARIS 70 was sold in the second quarter of 2020.

VALARIS 101 was sold and resulted in a gain of $5.3 million during the four months ended April 30, 2021 (Predecessor).

9. DEBT

The carrying value of our ~~long-term~~ debt as of December 31, ~~2018~~2021 (Successor) and ~~2017~~2020 (Predecessor) consisted of the following (in millions):


	Successor		Predecessor
	2021		2020(1)
Secured first lien notes due 2028	$	545.3	$	—
6.875% Senior notes due 2020	—		122.9
4.70% Senior notes due 2021	—		100.7
4.875% Senior notes due 2022(2)	—		620.8
3.00% Exchangeable senior notes due 2024	—		849.5
4.50% Senior notes due 2024	—		303.4
4.75% Senior notes due 2024(2)	—		318.6
8.00% Senior notes due 2024	—		292.3
5.20% Senior notes due 2025	—		333.7
7.375% Senior notes due 2025(2)	—		360.8
7.75% Senior notes due 2026	—		1,000.0
7.20% Debentures due 2027	—		112.1
7.875% Senior notes due 2040	—		300.0
5.40% Senior notes due 2042(2)	—		400.0
5.75% Senior notes due 2044	—		1,000.5
5.85% Senior notes due 2044(2)	—		400.0
Amounts drawn under the Revolving Credit Facility (3)	—		581.0
Total debt	$	545.3	$	7,096.3
Less: Liabilities Subject to Compromise	—		7,096.3
Less: current maturities	—		—
Total long-term debt	$	545.3	$	—

(1) The carrying amounts above represent the aggregate principal amount of Senior Notes outstanding as well as outstanding borrowings under our Revolving Credit Facility as of the Petition Date and are classified as Liabilities Subject to Compromise in our Consolidated Balance Sheet as of December 31, 2020 (Predecessor). We discontinued accruing interest on our indebtedness following the Petition Date and all accrued interest as of the Petition Date is classified as Liabilities Subject to Compromise in our Consolidated Balance Sheet as of December 31, 2020 (Predecessor). Additionally, we incurred a net non-cash charge of $447.9 million to write off any unamortized debt discounts, premiums and issuance costs, including the amounts related to the 2024 Convertible Notes discussed below, which is included in Reorganization items, net on our Consolidated Statements of Operations for the year ended December 31,

134

2018 2017
8.50% Senior notes due 2019⁽¹⁾
$ —
$ 251.4
6.875% Senior notes due 2020⁽¹⁾
127.5
477.9
4.70% Senior notes due 2021⁽¹⁾
112.7
267.1
3.00% Exchangeable senior notes due 2024⁽²⁾
666.8
635.7
4.50% Senior notes due 2024 619.8
619.3
8.00% Senior notes due 2024 337.0
337.9
5.20% Senior notes due 2025 664.4
663.6
7.75% Senior notes due 2026 985.0
—
7.20% Debentures due 2027 149.3
149.3
7.875% Senior notes due 2040 375.0
376.7
5.75% Senior notes due 2044 972.9
971.8
Total long-term debt $ 5,010.4
$ 4,750.7
2020 (Predecessor). On the Effective Date, in accordance with the plan of reorganization, all outstanding obligations under the Predecessor's Senior Notes, including the 2024 Convertible Notes, and the Revolving Credit Facility were cancelled and the holders thereunder received their pro rata share of certain Common Shares issued on the Effective Date. See below and "Note 2 - Chapter 11 Proceedings" for additional information.

⁽¹⁾

(2) These senior notes were acquired in the Rowan Transaction.

(3) In addition to the amount borrowed above, we had $27.0 million in undrawn letters of credit issued under the Revolving Credit Facility.

Indenture

On the Effective Date, in accordance with the plan of reorganization and Backstop Commitment Agreement, dated August 18, 2020 (as amended, the "BCA"), the Company consummated the rights offering of the First Lien Notes and associated shares in an aggregate principal amount of $550.0 million. In accordance with the BCA, certain holders of senior notes claims and certain holders of claims under the Revolving Credit Facility who provided backstop commitments received the backstop premium in an aggregate amount equal to $50.0 million in First Lien Notes and 2.7%of the Common Shares on the Effective Date. The Debtors paid a commitment fee of $20.0 million, in cash prior to the Petition Date, which was loaned back to the reorganized company upon emergence. Therefore, upon emergence the Debtors received $520 million in cash in exchange for a $550 million note, which includes the backstop premium. See“Note 2 – Chapter 11 Proceedings” for additional information.

The First Lien Notes were issued pursuant to the Indenture, among Valaris Limited, certain direct and indirect subsidiaries of Valaris Limited as guarantors, and Wilmington Savings Fund Society, FSB, as collateral agent and trustee (in such capacities, the “Collateral Agent”).

135

At any time prior to April 30, 2023, the Company may redeem up to 35% of the aggregate principal amount of the First Lien Notes at a redemption price of 104% up to the net cash proceeds received by the Company from equity offerings provided that at least 65% of the aggregate principal amount of the First Lien Notes remains outstanding and provided that the redemption occurs within 120 days after such equity offering of the Company. At any time prior to April 30, 2023, the Company may redeem the First Lien Notes at a redemption price of 104% plus a “make-whole” premium. On or after April 30, 2023, the Company may redeem all or part of the First Lien Notes at fixed redemption prices (expressed as percentages of the principal amount), plus accrued and unpaid interest, if any, to, but excluding, the redemption date. The Company may also redeem the First Lien Notes, in whole or in part, at any time and from time to time on or after April 30, 2026 at a redemption price equal to 100% of the principal amount plus accrued and unpaid interest, if any, to, but excluding, the applicable redemption date. Notwithstanding the foregoing, if a Change of Control (as defined in the Indenture, with certain exclusions as provided therein) occurs, the Company will be required to make an offer to repurchase all or any part of each note holder’s notes at a purchase price equal to 101% of the aggregate principal amount of First Lien Notes repurchased, plus accrued and unpaid interest to, but excluding, the applicable date.

The Indenture contains covenants that limit, among other things, the Company’s ability and the ability of the guarantors and other restricted subsidiaries, to: (i) incur, assume or guarantee additional indebtedness; (ii) pay dividends or distributions on equity interests or redeem or repurchase equity interests; (iii) make investments; (iv) repay or redeem junior debt; (v) transfer or sell assets; (vi) enter into sale and lease back transactions; (vii) create, incur or assume liens; and (viii) enter into transactions with certain affiliates. These covenants are subject to a number of important limitations and exceptions.

The Indenture also provides for certain customary events of default, including, among other things, nonpayment of principal or interest, breach of covenants, failure to pay final judgments in excess of a specified threshold, failure of a guarantee to remain in effect, failure of a collateral document to create an effective security interest in collateral, with a fair market value in excess of a specified threshold, bankruptcy and insolvency events, cross payment default and cross acceleration, which could permit the principal, premium, if any, interest and other monetary obligations on all the then outstanding First Lien Notes to be declared due and payable immediately.

The Company incurred $5.2 million in issuance costs in association with the First Lien Notes that are being amortized into interest expense over the expected life of the notes using the effective interest method.

Predecessor Debtor in Possession Financing

On September 25, 2020, following approval by the Bankruptcy Court, the Debtors entered into the Debtor-in-Possession ("DIP") Credit Agreement (the "DIP Credit Agreement"), by and among the Company and certain wholly owned subsidiaries of the Company, as borrowers, the lenders party thereto and Wilmington Savings Fund Society, FSB, as administrative agent and security trustee, in an aggregate amount not to exceed $500.0 million that will be used to finance, among other things, the ongoing general corporate needs of the Debtors during the course of the Chapter 11 Cases and to pay certain fees, costs and expenses associated with the Chapter 11 Cases. As of the Effective Date, there were no borrowings outstanding against our DIP facility and there were no DIP claims payable subsequent to, or that otherwise survived, the Effective Date. The DIP Credit Agreement terminated on the Effective Date.

As of December 31, 2020 (Predecessor), we had 0 borrowings outstanding against our DIP Facility.

136

Predecessor Senior Notes

The commencement of the Chapter 11 Cases was considered an event of default under each series of our senior notes and all obligations thereunder were accelerated. However, any efforts to enforce payment obligations related to the acceleration of our debt were automatically stayed as a result of the filing of the Chapter 11 Cases. Accordingly, the $6.5 billion in aggregate principal amount outstanding under the Senior Notes as well as $201.9 million in associated accrued interest as of the Petition Date were classified as Liabilities Subject to Compromise in our Consolidated Balance Sheets as of December 31, 2020 (Predecessor). On the Effective Date, pursuant to the plan of reorganization, each series of our senior notes were cancelled and the holders thereunder received the treatment as set forth in the plan of reorganization. The below paragraphs in this section contain further details about the inception or purchase of each of the Predecessor Senior Notes that were cancelled.

As a result of the Rowan Transaction, we acquired the following senior notes issued by Rowan Companies, LLC (formerly Rowan Companies, Inc.) ("RCI") and guaranteed by Rowan: (1) $201.4 million in aggregate principal amount of 7.875% unsecured senior notes due 2019, which were repaid at maturity in August 2019, (2) $620.8 million in aggregate principal amount of 4.875% 2022 Notes (the "4.875% 2022 Notes"), (3) $398.1 million in aggregate principal amount of 4.75% 2024 Notes (the "4.75% 2024 Notes"), (4) $500.0 million in aggregate principal amount of 7.375% 2025 Notes (the "7.375% 2025 Notes"), (5) $400.0 million in aggregate principal amount of 2042 Notes (the "2042 Notes"), and (6) $400.0 million in aggregate principal amount of 5.85% 2044 Notes (the "5.85% 2044 Notes"). On February 3, 2020, Rowan and RCI transferred substantially all their assets on a consolidated basis to Valaris plc, Valaris plc became the obligor on the notes and Rowan and RCI were relieved of their obligations under the notes and the related indenture.

On January 26, 2018, we issued $1.0 billion aggregate principal amount of unsecured 7.75% senior notes due 2026 (the "2026 Notes") at par, net of $16.5 million in debt issuance costs. Interest on the 2026 Notes was payable semiannually on February 1 and August 1 of each year.

During 2017, we exchanged $332.0 million aggregate principal amount of unsecured 8.00% senior notes due 2024 (the “8 % 2024 Notes”) for certain amounts of our outstanding senior notes due 2019, 2020 and 2021. Interest on the 8% 2024 Notes was payable semiannually on January 31 and July 31 of each year.

During 2015, we issued $700.0 million aggregate principal amount of unsecured 5.20% senior notes due 2025 (the “2025 Notes”) at a discount of $2.6 million and $400.0 million aggregate principal amount of unsecured 5.75% senior notes due 2044 (the “New 2044 Notes”) at a discount of $18.7 million in a public offering. Interest on the 2025 Notes was payable semiannually on March 15 and September 15 of each year. Interest on the New 2044 Notes was payable semiannually on April 1 and October 1 of each year.

During 2014, we issued $625.0 million aggregate principal amount of unsecured 4.50% senior notes due 2024 (the "2024 Notes") at a discount of $0.9 million and $625.0 million aggregate principal amount of unsecured 5.75% senior notes due 2044 (the "Existing 2044 Notes") at a discount of $2.8 million. Interest on the 2024 Notes and the Existing 2044 Notes was payable semiannually on April 1 and October 1 of each year. The Existing 2044 Notes together with the New 2044 Notes, the "2044 Notes", were treated as a single series of debt securities under the indenture governing the notes.

During 2011, we issued $1.5 billion aggregate principal amount of unsecured 4.70% senior notes due 2021 (the “2021 Notes”) at a discount of $29.6 million in a public offering. Interest on the 2021 Notes was payable semiannually on March 15 and September 15 of each year.

137

Upon consummation of our acquisition of Pride International LLC ("Pride") during 2011, we assumed outstanding debt comprised of $900.0 million aggregate principal amount of unsecured 6.875% senior notes due 2020, $300.0 million aggregate principal amount of unsecured 7.875% senior notes due 2040 (collectively, the "Pride Notes"), and $500.0 million aggregate principal amount of unsecured 8.5% senior notes due 2019 (collectively, with the Pride Notes, the "Acquired Notes"). Valaris plc fully and unconditionally guaranteed the performance of all Pride obligations with respect to the Acquired Notes.

Certain of these senior notes allowed us to redeem these senior notes, either in whole in part, subject to the payment of certain “make whole” premiums. The indentures governing these senior notes contained customary events of default, including failure to pay principal or interest on such notes when due, among others. The indenture also contained certain restrictions, including, among others, restrictions on our ability and the ability of our subsidiaries to create or incur secured indebtedness, enter into certain sale/leaseback transactions and enter into certain merger or consolidation transactions.

The decline in the carrying value of our 8.50% senior notes due 2019, 6.875% senior notes due 2020 and our 4.70% senior notes due 2021 resulted from repurchases and redemptions during the first quarter of 2018 discussed below.

⁽²⁾

Our 2024 Convertible Notes were issued with a conversion feature. The 2024 Convertible Notes were separated into their liability and equity components on our consolidated balance sheet. The equity component was initially recorded to additional paid-in capital and as a debt discount that will be amortized to interest expense over the life of the instrument. Excluding the unamortized discount, the carrying value of the 2024 Convertible Notes was $836.3 million and $834.0 million as of December 31, 2018 and 2017, respectively.

Predecessor Debentures Due 2027

During 1997, Ensco International Incorporated issued $150.0 million of unsecured 7.20% Debentures due 2027 (the "Debentures"). Interest on the Debentures was payable semiannually on May 15 and November 15 of each year. We may redeem the Debentures, in whole or in part, at any time prior to maturity, at a price equal to 100% of their principal amount, plus accrued and unpaid interest and a "make-whole" premium. During 2009, Valaris plc entered into a supplemental indenture to unconditionally guarantee the principal and interest payments on the Debentures.

The Debentures and the indenture pursuant to which the Debentures were issued also contained customary events of default, including failure to pay principal or interest on the Debentures when due, among others. The indenture also contained certain restrictions, including, among others, restrictions on our ability and the ability of our subsidiaries to create or incur secured indebtedness, enter into certain sale/leaseback transactions and enter into certain merger or consolidation transactions.

Predecessor 2024 Convertible Notes

In December 2016, Ensco Jersey Finance Limited, a wholly-owned subsidiary of ~~Ensco~~Valaris plc, issued $849.5 million aggregate principal amount of ~~unsecured~~3.00% convertible senior notes due 2024 (the "2024 Convertible ~~Notes~~Notes") in a private offering. The 2024 Convertible Notes are fully and unconditionally guaranteed, on a senior, unsecured basis, by ~~Ensco plc and are exchangeable into~~Valaris plc. Under the terms of the agreement, we had the option to settle our 2024 Convertible Notes in cash, ~~our Class A ordinary~~ shares or a combination thereof atfor the aggregate amount due upon conversion. However, the commencement of the Chapter 11 Cases on August 19, 2020, constituted an event of default under the 2024 Convertible Notes. Any efforts to enforce payment obligations under the 2024 Convertible Notes, including any rights to require the repurchase by the Company of the 2024 Convertible Notes upon the NYSE delisting of the Class A ordinary shares, were automatically stayed as a result of the filing of the Chapter 11 Cases. Accordingly, the aggregate principal amount of 2024 Convertible Notes outstanding as well as associated accrued interest as of the Petition Date were classified as Liabilities Subject to Compromise in our ~~election.~~ Consolidated Balance Sheet as of December 31, 2020 (Predecessor). On the Effective Date, pursuant to the plan of reorganization, all outstanding obligations under the 2024 Convertible Notes, were cancelled and the holders thereunder received the treatment as set forth in the plan of reorganization.

If our average share price had exceeded the exchange price during a respective Predecessor reporting period, an assumed number of shares required to settle the conversion obligation in excess of the principal amount would have been included in our denominator for the computation of diluted EPS using the treasury stock method. See "Note 1 - Description of the Business and Summary of Significant Accounting Policies" for additional information regarding the impact to our EPS.

138

Interest on the 2024 Convertible Notes iswas payable semiannually on January 31 and July 31 of each year. The 2024 Convertible Notes will mature on January 31, 2024, unless exchanged, redeemed or repurchased in accordance with their terms prior to such date. Holders may exchange their 2024 Convertible Notes at their option any time prior to July 31, 2023 only under certain circumstances set forth in the indenture governing the 2024 Convertible Notes. On or after July 31, 2023, holders may exchange their 2024 Convertible Notes at any time. The exchange rate ~~is 71.3343~~was 17.8336shares per $1,000 principal amount of notes, representing an exchange price of ~~$14.02~~$56.08per share, and iswas subject to adjustment upon certain events. The 2024 Convertible Notes may not be redeemed by us except in the event of certain tax law changes.

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 EPS using the treasury stock method. See "Note 1 - Description of the Business and Summary of Significant Accounting Policies" for additional information regarding the impact to our EPS.

The 2024 Convertible Notes were separated, at issuance, into their liability and equity components ~~and included in long-term debt and~~on our Consolidated Balance Sheet. The equity component was initially recorded to additional paid-in capital ~~on our consolidated balance sheet, respectively.~~and as a debt discount and the discount was being amortized to interest expense over the life of the instrument. The carrying amount of the liability component was initially calculated by measuring the estimated fair value of a similar liability that ~~does~~did not include an associated conversion feature. The carrying amount of the equity component representing the conversion feature was initially determined by deducting the fair value of the liability component from the principal amount of the 2024 Convertible Notes. The difference between the carrying amount of the liability and the principal amount ishas been amortized to interest expense over the term of the 2024 Convertible Notes, together with the coupon interest, resulting in an effective interest rate of approximately 8%8.00% per annum. The carrying amount of the 2024 Convertible Notes at December 31, 2020 (Predecessor) represented the aggregate principal amount of these notes as of the Petition Date and are classified as Liabilities Subject to Compromise in our Consolidated Balance Sheet as of December 31, 2020 (Predecessor). The equity component iswas $220.0 million at December 31, 2020 (Predecessor) and remained in Additional paid-in capital. The equity component was not remeasured if we ~~continue~~continued to meet certain conditions for equity classification. On the Effective Date, in accordance with the plan of reorganization, all outstanding obligations under the 2024 Convertible Notes were cancelled and the equity component was written off to retained earnings.

The costs related to the issuance of the 2024 Convertible Notes were initially allocated to the liability and equity components based on their relative fair values. Issuance costs attributable to the liability component ~~are~~were amortized to interest expense over the term of the notes and the issuance costs attributable to the equity component were recorded to ~~additional~~Additional paid-in capital on our ~~consolidated balance sheet.~~Consolidated Balance Sheet.

~~As of~~During the years ended December 31, ~~2018~~2020 and ~~2017,~~2019 (Predecessor), we recognized $16.1 million and $25.5 million, respectively, associated with coupon interest. Amortization of debt discount and issuance costs were $21.4 million and $32.5 million for the ~~2024 Convertible Notes consist~~years ended December 31, 2020 and 2019 (Predecessor), respectively. We discontinued accruing interest on these notes as of the ~~following (in millions):~~

Liability component: 2018 2017
Principal $ 849.5
$ 849.5
Less: Unamortized debt discount and issuance costs (182.7 ) (213.8 )
Net carrying amount 666.8
635.7
Equity component, net $ 220.0
$ 220.0

~~During~~Petition Date. Additionally, we incurred a net non-cash charge of $128.8 million to write off $119.5 million of unamortized debt discount and $9.3 million of unamortized debt issuance costs related to these notes, which is included in Reorganization items, net on our Consolidated Statements of Operations the year ended December 31, 2018, we recognized $25.5 million associated with coupon interest and $31.0 million associated with the amortization of debt discount and issuance costs. During the year ended December 31, 2017, we recognized $25.5 million associated with coupon interest and $31.4 million associated the amortization of debt discount and issuance costs.2020 (Predecessor).

The indenture governing the 2024 Convertible Notes ~~contains~~contained customary events of default, including failure to pay principal or interest on such notes when due, among others. The indenture also ~~contains~~contained certain restrictions, including, among others, restrictions on our ability and the ability of our subsidiaries to create or incur secured indebtedness, enter into certain sale/leaseback transactions and enter into certain merger or consolidation transactions.

~~Senior~~

139

The 2021 Notes,

On January 26, 2018, we issued $1.0 billion aggregate principal amount of unsecured 7.75% senior notes due 2026 (the "2026 Notes") at par, net of $16.5 million of debt issuance costs. Interest on the 2026 4.875% 2022 Notes, ~~is payable semiannually on February 1 and August 1 of each year.~~

During 2017, we exchanged $332.0 million aggregate principal amount of unsecured 8.00% senior notes due 2024 (the “8 % 2024 Notes”) for certain amounts of our outstanding senior notes due 2019, 2020 and 2021. Interest on the 8%4.75% 2024 Notes, ~~is payable semiannually on January 31 and July 31 of each year.~~

Upon consummation of the Pride acquisition during 2011, we assumed outstanding debt comprised of $900.0 million aggregate principal amount of unsecured 6.875% senior notes due 2020, $500.0 million aggregate principal amount of unsecured 8.5% senior notes due 2019 and $300.0 million aggregate principal amount of unsecured 7.875% senior notes due 2040 (collectively, the "Acquired Notes" and together with the 2021 Notes, 8%8.00% 2024 Notes, 2024 Notes, 2025 Notes, 2026 Notes and 2044 Notes, the "Senior Notes"). Ensco plc has fully and unconditionally guaranteed the performance of all Pride obligations with respect to the Acquired Notes. See "Note 15 - Guarantee of Registered Securities" for additional information on the guarantee of the Acquired Notes.

~~We may redeem the 8% 2024 Notes, 2024 Notes,~~7.375% 2025 Notes, 2026 Notes, ~~and~~2042 Notes, 5.85% 2044 Notes, in whole at any time, or in part from time to time, prior to maturity. If we elect to redeem the 8% 2024 Notes, 2024 Notes, 2025 Notes and 2026 Notes before the date that is three months prior to the maturity date or theExisting 2044 Notes, ~~before~~ the ~~date that is six months prior to~~Pride Notes, the ~~maturity date,~~Debentures and 2024 Convertible Notes" together are the "Senior Notes".

Tender Offers and Open Market Repurchases (Predecessor)

In early March 2020, we will pay an amount equal to 100% of the principal amount of the notes redeemed plus accrued and unpaid interest and a "make-whole" premium. If we elect to redeem the 8% 2024 Notes, 2024 Notes, 2025 Notes, 2026 Notes or 2044 Notes on or after the aforementioned dates, we will pay an amount equal to 100% of the principal amount of the notes redeemed plus accrued and unpaid interest but we are not required to pay a "make-whole" premium.

~~We may redeem each series~~repurchased $12.8 million of the 2021 Notes ~~and the Acquired Notes, in whole or in part, at any time at a price equal to 100% of their principal amount, plus accrued and unpaid interest and a "make-whole" premium.~~

~~Debentures Due 2027~~

contains certain restrictions, including, among others, restrictions on our ability and the ability of our subsidiaries to create or incur secured indebtedness, enter into certain sale/leaseback transactions and enter into certain merger or consolidation transactions.

~~Tender Offers, Redemptions and Open Market Repurchases~~

Concurrent with the issuance of the 2026 Notes in January 2018, we launched cash tender offers for up to $985.0 million aggregate principal amount of certain series of our senior notes issued by us and Pride. The tender offers expired February 7, 2018, and we repurchased $182.6 million of our 8.50% senior notes due 2019, $256.6 million of our 6.875% senior notes due 2020 and $156.2 million of the 2021 Notes. Subsequently, we issued a redemption notice for the remaining outstanding $55.0 million principal amount of the 8.50% senior notes due 2019 and repurchased $71.4 million principal amount of our senior notes due 2020. As a result of these transactions, we recognized a pre-tax loss from debt extinguishment of $19.0 million, net of discounts, premiums, debt issuance costs and commissions during the first quarter of 2018.

~~During 2017, we repurchased $194.1 million of our outstanding senior notes~~ on the open market for an aggregate purchase price of ~~$204.5~~$9.7 million, excluding accrued interest, with cash on ~~hand~~hand. As a result of the transaction, we recognized a pre-tax gain of $3.1 million, net of discounts in Other, net, in the Consolidated Statements of Operations.

On June 25, 2019, we commenced cash tender offers for certain series of our senior notes. The tender offers expired on July 23, 2019, and we repurchased $951.8 million of our outstanding senior notes for an aggregate purchase price of $724.1 million. As a result of the transaction, we recognized ~~an insignificant~~a pre-tax gain from debt extinguishment of $194.1 million, net of discounts, premiums and debt issuance ~~costs.~~costs in other, net, in the Consolidated Statements of Operations.

Our tender offers and open market repurchases ~~during~~are summarized in the ~~two-year period ended December 31, 2018 were as follows~~following table (in millions):


	Predecessor
	Aggregate Principal Amount Repurchased		Aggregate Repurchase Price(1)
Year Ended December 31, 2020
4.70% Senior notes due 2021	$	12.8	$	9.7

Year Ended December 31, 2019
4.50% Senior notes due 2024	$	320.0	$	240.0
4.75% Senior notes due 2024	79.5		61.2
8.00% Senior notes due 2024	39.7		33.8
5.20% Senior notes due 2025	335.5		250.0
7.375% Senior notes due 2025	139.2		109.2
7.20% Senior notes due 2027	37.9		29.9
	$	951.8	$	724.1

~~Year Ended December 31, 2018~~

~~Year Ended December 31, 2017~~


⁽¹⁾	~~Excludes accrued interest paid to holders of the repurchased senior notes.~~

~~Exchange Offers~~(1) Excludes accrued interest paid to holders of the repurchased senior notes.

~~During 2017, we completed exchange offers to exchange our outstanding 2019 Notes, 2020 Notes and 2021 Notes for our 8% 2024 Notes and cash. The exchange offers resulted in~~PredecessorRevolving Credit Facility

Effective upon closing of the ~~tender of $649.5 million aggregate principal amount of our outstanding notes that were settled and exchanged as follows (in millions):~~

~~Debt to Equity Exchange~~

~~Revolving Credit~~

~~In October 2017, we amended~~Rowan Transaction, our revolving credit facility ("Credit Facility") to extend the final maturity date by two years. Previously, our Credit Facility had a borrowing capacity of $2.25 billion through September 2019 that declined to $1.13 billion through September 2020. Subsequent to the amendment, our borrowing capacity is $2.0 billion through September 2019 and declines to $1.3 billion through September 2020 and to $1.2 billion through September 2022. The credit agreement governing our Credit Facility includes an accordion feature allowing us to increase the commitments expiring in September 2022 up to an aggregate amount not to exceed $1.5was $1.6 billion.

Advances under the Credit Facility bear interest at Base Rate or LIBOR plus an applicable margin rate, depending on our credit ratings. We are required to pay a quarterly commitment fee on the undrawn portionThe commencement of the ~~$2.0 billion commitment, which is also based on our credit ratings.~~

~~In January 2018, Moody's downgraded our senior unsecured bond credit rating from B2 to B3. The rating actions~~Chapter 11 Cases resulted in an ~~increase to~~event of default under our Revolving Credit Facility. However, the ~~interest rates applicable to our borrowings and the quarterly commitment fee on the undrawn portion~~ability of the $2.0 billion commitment. The applicable margin rates are 3.00% per annum for Base Rate advances and 4.00% per annum for LIBOR advances. The quarterly commitment fee is 0.75% per annum on the undrawn portionlenders to exercise remedies in respect of the ~~$2.0 billion commitment.~~

~~The~~Revolving Credit Facility requires us to maintain a total debt to total capitalization ratio that is less than or equal to 60% and to provide guarantees from certain of our rig-owning subsidiaries sufficient to meet certain guarantee coverage ratios. The Credit Facility also contains customary restrictive covenants, including, among others, prohibitions on creating, incurring or assuming certain debt and liens (subject to customary exceptions, including a permitted lien basket that permits us to raise secured debt up to the lesser of $750 million or 10% of consolidated tangible net worth (as defined in the Credit Facility)); entering into certain merger arrangements; selling, leasing, transferring or otherwise disposing of all or substantially all of our assets; making a material change in the naturewas stayed upon commencement of the ~~business; paying or distributing dividends on our ordinary shares (subject to certain exceptions, including~~Chapter 11 Cases. Accordingly, the ~~ability to continue paying a~~

~~quarterly dividend~~$581.0 million of ~~$0.01 per share); borrowings, if after giving effect to any such borrowings and the application~~outstanding borrowing as well as accrued interest as of the ~~proceeds thereof, the aggregate amount of available cash (as defined~~Petition Date were classified as Liabilities Subject to Compromise in ~~the Credit Facility) would exceed $150 million; and entering into certain transactions with affiliates.~~

~~The Credit Facility also includes a covenant restricting~~ our ability to repay indebtedness maturing after September 2022, which is the final maturity date of our Credit Facility. This covenant is subject to certain exceptions that permit us to manage our balance sheet, including the ability to make repayments of indebtedness (i) of acquired companies within 90 days of the completion of the acquisition or (ii) if, after giving effect to such repayments, available cash is greater than $250 million and there are no amounts outstanding under the Credit Facility.

As of December 31, 2018, we were in compliance in all material respects with our covenants under the Credit Facility. We expect to remain in compliance with our Credit Facility covenants during 2019. We had no amounts outstanding under the Credit FacilityConsolidated Balance Sheet as of December 31, ~~2018~~2020 (Predecessor). On the Effective Date, pursuant to the plan of reorganization, the Revolving Credit Facility was cancelled and ~~2017.~~

~~Our access to credit and capital markets depends on~~ the ~~credit ratings assigned to our debt. As a result~~holders thereunder received the treatment as set forth in the plan of recent rating actions by credit rating agencies, we no longer maintain an investment-grade status. Our current credit ratings, and any additional actual or anticipated downgrades in our credit ratings, could limit our available options when accessing credit and capital markets, or when restructuring or refinancing our debt. In addition, future financings or refinancings may result in higher borrowing costs and require more restrictive terms and covenants, which may further restrict our operations.

~~Maturities~~

140

Senior Notes Original Principal 2016 Tenders, Repurchases and Equity Exchange 2017 Exchange Offers and Repurchases 2018 Tender Offers, Redemption and Debt Issuance Remaining Principal
8.50% due 2019 $ 500.0
$ (62.0 ) $ (200.4 ) $ (237.6 ) $ —
6.875% due 2020 900.0
(219.2 ) (229.9 ) (328.0 ) 122.9
4.70% due 2021 1,500.0
(817.0 ) (413.3 ) (156.2 ) 113.5
3.00% Exchangeable senior notes due 2024 849.5
—
—
—
849.5
4.50% due 2024 625.0
(1.7 ) —
—
623.3
8.00% due 2024 —
—
332.0
—
332.0
5.20% due 2025 700.0
(30.7 ) —
—
669.3
7.75% due 2026 —
—
—
1,000.0
1,000.0
7.20% due 2027 150.0
—
—
—
150.0
7.875% due 2040 300.0
—
—
—
300.0
5.75% due 2044 1,025.0
(24.5 ) —
—
1,000.5
Total $ 6,549.5
$ (1,155.1 ) $ (511.6 ) $ 278.2
$ 5,161.0

Prior to the Effective Date, pursuant to the plan of reorganization, all undrawn letters of credit issued under the Revolving Credit Facility were collateralized pursuant to the terms of the Revolving Credit Facility.

Interest Expense

Interest expense totaled ~~$282.7 million~~, ~~$224.2~~$31.0 million and ~~$228.8~~$2.4 million for the eight months ended December 31, 2021 (Successor) and the four months ended April 30, 2021 (Predecessor), respectively. Interest expense totaled $290.6 million and $428.3 million for the years ended December 31, ~~2018, 2017~~2020 and ~~2016,~~2019 (Predecessor), respectively, which was net of capitalized interest of ~~$62.6 million, $72.5~~$1.3 million and ~~$45.7~~$20.9 million associated with newbuild rig construction and other capital projects. The contractual interest expense on the outstanding Senior Notes and the Revolving Credit Facility was in excess of recorded interest expense by $132.9 million and $140.7 million for the four months ended April 30, 2021 (Predecessor) and for the year ended December 31, 2020 (Predecessor), respectively. This excess contractual interest was not included as interest expense on our Consolidated Statements of Operations, as the Company discontinued accruing interest on the unsecured senior notes and Revolving Credit Facility subsequent to the Petition Date. We discontinued making interest payments on our unsecured senior notes beginning in June 2020.

7.10. DERIVATIVE INSTRUMENTS

Our functional currency is the U.S. dollar. As is customary in the oil and gas industry, a majority of our revenues are denominated in U.S. dollars; however, a portion of the revenues earned and expenses incurred by certain of our subsidiaries are denominated in currencies other than the U.S. dollar. These transactions are remeasured in U.S. dollars based on a combination of both current and historical exchange rates. We ~~use~~previously used derivatives to reduce our exposure to various market risks, primarily foreign currency exchange rate risk. ~~We maintain~~

The commencement of the Chapter 11 Cases constituted a ~~foreign currency exchange rate risk management strategy that utilizes derivatives~~termination event with respect to ~~reduce our exposure to unanticipated fluctuations in earnings and cash flows caused by changes in foreign currency exchange rates. We mitigate our credit risk relating to~~the Company’s derivative instruments, which permitted the counterparties of our derivative instruments to terminate their outstanding contracts. The exercise of these termination rights are not stayed under the Bankruptcy Code and the counterparties elected to terminate their outstanding derivatives ~~by transacting~~ with ~~multiple, high-quality financial institutions, thereby limiting exposure to individual counterparties,~~us in September 2020 for an aggregate settlement of $3.6 million which was recorded as a gain in Contract drilling expense in our Consolidated Statements of Operations for the year ended December 31, 2020 (Predecessor). As a result, we no longer had derivative assets or liabilities on our Consolidated Balance Sheet as of December 31, 2020 (Predecessor). During the four months ended April 30, 2021 (Predecessor) and by entering into International Swaps and Derivatives Association, Inc. (“ISDA”) Master Agreements, which include provisions for a legally enforceable master netting agreement, with our derivative counterparties. See "Note 14 - Supplemental Financial Information" for additional information on the mitigation of credit risk relating to counterparties of our derivatives. We doeight months ended December 31, 2021 (Successor), we did not enter into ~~derivatives for trading~~derivative contracts; therefore, we do not have derivative assets or ~~other speculative purposes.~~liabilities on our Consolidated Balance Sheet as of December 31, 2021(Successor).

All derivatives were recorded on our consolidated balance sheets at fair value. Derivatives subject to legally enforceable master netting agreements were not offset on our consolidated balance sheets. Accounting for the gains and losses resulting from changes in the fair value of derivatives depends on the use of the derivative and whether it qualifies for hedge accounting. See "Note 1 - Description of the Business and Summary of Significant Accounting Policies" for additional information on our accounting policy for derivatives and "Note 4 - Fair Value Measurements" for additional information on the fair value measurement of our derivatives.

~~As of~~ ~~December 31, 2018~~ ~~and~~ ~~2017, our consolidated balance sheets included net foreign currency derivative~~ ~~liabilities~~ of ~~$10.7 million~~ ~~and assets of $6.8 million, respectively. All of our derivatives mature within the next~~ 18 ~~months.~~

~~Derivatives recorded at fair value on our consolidated balance sheets as of~~ ~~December 31, 2018~~ ~~and~~ ~~2017~~ ~~consisted of the following (in millions):~~

141

Derivative Assets Derivative Liabilities
2018 2017 2018 2017
Derivatives Designated as Hedging Instruments

Foreign currency forward contracts - current⁽¹⁾
$ .2
$ 5.9
$ 8.3
$ .2
Foreign currency forward contracts - non-current⁽²⁾
—
.5
.4
.1
.2
6.4
8.7
.3
Derivatives not Designated as Hedging Instruments

Foreign currency forward contracts - current⁽¹⁾
.4
.9
2.6
.2
Total $ .6
$ 7.3
$ 11.3
$ .5


⁽¹⁾	Derivative assets and liabilities that have maturity dates equal to or less than 12 months from the respective balance sheet dates were included in other current assets and accrued liabilities and other, respectively, on our consolidated balance sheets.


⁽²⁾	Derivative assets and liabilities that have maturity dates greater than 12 months from the respective balance sheet dates were included in other assets and other liabilities, respectively, on our consolidated balance sheets.

~~We utilize~~Historically we have utilized cash flow hedges to hedge forecasted foreign currency denominated transactions, primarily to reduce our exposure to foreign currency exchange rate risk associated with contract drilling expenses and capital expenditures denominated in various currencies. ~~As of~~ ~~December 31, 2018~~, we had cash flow hedges outstanding to exchange an aggregate $187.8 million for various foreign currencies, including $88.0 million for British pounds, $50.3 million for Australian dollars, $19.7 million for euros, $16.2 million for Brazilian reals, $11.0 million for Singapore dollars and $2.6 million for other currencies.

Gains and losses, net of tax, on derivatives designated as cash flow hedges included in our ~~consolidated statements~~Consolidated Statements of ~~operations~~Operations and comprehensive ~~income for each of the years in the three-year period ended~~ ~~December 31, 2018~~loss were as follows (in millions):


	Gain (Loss) Recognized in Other Comprehensive Income ("OCI") on Derivatives (Effective Portion)
	Successor		Predecessor
	Eight Months Ended December 31, 2021		Four Months Ended April 30, 2021		Year Ended December 31, 2020		Year Ended December 31, 2019

Foreign currency forward contracts	—		—		(5.4)		1.6
Total	$	—	$	—	$	(5.4)	$	1.6


	(Gain) Loss Reclassified from AOCI into Income (Effective Portion)(1)
	Successor		Predecessor
	Eight Months Ended December 31, 2021		Four Months Ended April 30, 2021		Year Ended December 31, 2020		Year Ended December 31, 2019
Interest rate lock contracts(2)	$	—	$	—	$	—	$	1.9
Foreign currency forward contracts(3)	—		(5.6)		(11.6)		6.4
Total	$	—	$	(5.6)	$	(11.6)	$	8.3

(1)Changes in the fair value of cash flow hedges are recorded in AOCI. Amounts recorded in AOCI associated with cash flow hedges are subsequently reclassified into contract drilling expense, depreciation or interest expense as earnings are affected by the underlying hedged forecasted transaction.

(2)Losses on interest rate lock derivatives reclassified from AOCI into income were included in Interest expense, net, in our Consolidated Statements of Operations.

(3)During the four months ended April 30, 2021 (Predecessor), $5.6 million of gains were reclassified from AOCI into Loss on impairment in our Consolidated Statements of Operations in connection with the impairment of certain rigs. During the year ended December 31, 2020 (Predecessor), $2.0 million of losses were reclassified from AOCI into Contract drilling expense and $13.6 million of gains were reclassified from AOCI into Depreciation expense in our Consolidated Statements of Operations. During the year ended December 31, 2019 (Predecessor), $7.3 million of losses were reclassified from AOCI into Contract drilling expense and $0.9 million of gains were reclassified from AOCI into Depreciation expense in our Consolidated Statements of Operations.

142

Gain (Loss) Recognized in Other Comprehensive
Income ("OCI")
on Derivatives
(Effective Portion)

(Gain) Loss Reclassified from
AOCI into Income
(Effective Portion)⁽¹⁾

Gain (Loss) Recognized
in Income on
Derivatives (Ineffective
Portion and Amount
Excluded from
Effectiveness Testing)⁽²⁾
2018 2017 2016 2018 2017 2016 2018 2017 2016
Interest rate lock contracts⁽³⁾
$ —
$ —
$ —
$ .2
$ .2
$ .2
$ —
$ —
$ —
Foreign currency forward contracts⁽⁴⁾
(9.7 ) 8.5
(5.4 ) (1.2 ) .2
12.2
(1.9 ) (.7 ) 1.9
Total $ (9.7 ) $ 8.5
$ (5.4 ) $ (1.0 ) $ .4
$ 12.4
$ (1.9 ) $ (.7 ) $ 1.9


⁽¹⁾	Changes in the fair value of cash flow hedges are recorded in AOCI. Amounts recorded in AOCI associated with cash flow hedges are subsequently reclassified into contract drilling, depreciation or interest expense as earnings are affected by the underlying hedged forecasted transaction.


⁽²⁾	~~Gains and losses recognized in income for amounts excluded from effectiveness testing were included in other, net, in our consolidated statements of operations.~~


⁽³⁾	~~Losses on interest rate lock derivatives reclassified from AOCI into income were included in interest expense, net, in our consolidated statements of operations.~~

⁽⁴⁾

~~During the year ended~~ ~~December 31, 2018, $400,000 of~~ ~~gains~~ ~~were reclassified from AOCI into contract drilling expense and~~ ~~$800,000~~ of ~~gains~~ were reclassified from AOCI into depreciation expense in our consolidated statement of operations. During the year ended December 31, 2017, $1.1 million of losses were reclassified from AOCI into contract drilling expense and $900,000 of gains were reclassified from AOCI into depreciation expense in our consolidated statement of operations. During the year ended December 31, 2016, $13.1 million of losses were reclassified from AOCI into contract drilling and $900,000 of gains were reclassified from AOCI into depreciation expense in our consolidated statement of operations.

We have net assets and liabilities denominated in numerous foreign currencies and use various methods to manage our exposure to foreign currency exchange rate risk. We predominantly structure our drilling contracts in U.S. dollars, which significantly reduces the portion of our cash flows and assets denominated in foreign currencies. WeHistorically, we have occasionally ~~enter~~entered into derivatives that ~~hedge~~hedged the fair value of recognized foreign currency denominated assets or liabilities but dodid not designate such derivatives as hedging instruments. In these situations, a natural hedging relationship generally ~~exists~~existed whereby changes in the fair value of the derivatives offset changes in the fair value of the underlying hedged items. As of December 31, ~~2018,~~2021 (Successor) and December 31, 2020 (Predecessor) we ~~held derivatives~~did not ~~designated as hedging instruments~~have open derivative contracts to exchange an aggregate $175.7 million for various foreign currencies, including $89.3 million for euros, $19.8 million for Australian dollars, $19.6 million for Qatari riyals, $10.3 million for Indonesian rupiahs, $10.2 million for British pounds and $26.5 million for other currencies.hedge against this risk.

Net losses of ~~$11.8 million, gains of $10.0~~$0.2 million and ~~losses of $7.0~~$6.4 million associated with our derivatives not designated as hedging instruments were included in ~~other,~~Other, net, in our ~~consolidated statements~~Consolidated Statements of ~~operations~~Operations for the years ended December 31, ~~2018, 2017~~2020 and ~~2016,~~2019 (Predecessor), respectively.

~~As of December 31, 2018, the estimated amount of net losses associated with derivatives, net of tax, that will be reclassified to earnings during the next 12 months was as follows (in millions):~~

Net unrealized losses to be reclassified to contract drilling expense $ (5.2 )
Net realized gains to be reclassified to depreciation expense .8
Net realized losses to be reclassified to interest expense (.2 )
Net losses to be reclassified to earnings $ (4.6 )

8.11. SHAREHOLDERS' EQUITY

Activity in our various shareholders' equity accounts for ~~each of~~the eight months ended December 31, 2021 (Successor), the four months ended April 30, 2021 (Predecessor) and the years ~~in the three-year period~~ ended December 31, ~~2018~~ ~~was~~2020 (Predecessor) and 2019 (Predecessor) were as follows (in ~~millions)~~millions, except per share amounts):


	Shares	Par Value		Additional Paid-in Capital		Warrants		Retained Earnings (Deficit)		AOCI		Treasury Shares		Non-controlling Interest
BALANCE, December 31, 2018 (Predecessor)	115.2	$	46.2	$	7,225.0	$	—	$	874.2	$	18.2	$	(72.2)	$	(2.6)
Net income (loss)	—	—		—		—		(198.0)		—		—		5.8
Dividends paid ($0.04 per share)	—	—		—		—		(4.5)		—		—		—
Equity issuance in connection with the Rowan Transaction	88.0	35.2		1,367.5		—		—		—		0.1		—
Net changes in pension and other postretirement benefits	—	—		—		—		—		(21.7)		—		—
Distributions to noncontrolling interests	—	—		—		—		—		—		—		(4.5)
Equity issuance cost	—	—		(0.6)		—		—		—		—		—
Shares issued under share-based compensation plans, net	2.7	1.1		(1.3)		—		—		—		(0.7)		—
Repurchase of shares	—	—		—		—		—		—		(4.5)		—
Share-based compensation cost	—	—		37.2		—		—		—		—		—
Net other comprehensive income	—	—		—		—		—		9.7		—		—
BALANCE, December 31, 2019 (Predecessor)	205.9	82.5		8,627.8		—		671.7		6.2		(77.3)		(1.3)
Net loss	—	—		—		—		(4,855.5)		—		—		(2.1)
Net changes in pension and other postretirement benefits	—	—		—		—		—		(76.5)		—		—
Purchase of noncontrolling interests	—	—		(7.2)		—		—		—		—		—
Distributions to noncontrolling interests	—	—		—		—		—		—		—		(0.9)
Shares issued under share-based compensation plans, net	0.2	0.1		(1.9)		—		—		—		2.0		—
Repurchase of shares	—	—		—		—		—		—		(0.9)		—
Share-based compensation cost	—	—		21.2		—		—		—		—		—
Net other comprehensive loss	—	—		—		—		—		(17.6)		—		—

143

Shares Par Value
Additional
Paid-in
Capital

Retained
Earnings
AOCI
Treasury
Shares

Non-controlling
Interest
BALANCE, December 31, 2015 242.9
$ 24.4
$ 5,554.5
$ 985.3
$ 12.5
$ (63.8 ) $ 4.3
Net income —
—
—
890.2
—
—
6.9
Dividends paid ($0.04 per share) —
—
—
(11.4 ) —
—
—
Distributions to noncontrolling interests —
—
—
—
—
—
(7.8 )
Equity issuance 65.6
6.5
579.0
—
—
—
—
Equity for debt exchange 1.8
.2
14.8
—
—
—
—
Equity component of convertible debt —
—
220.0
—
—
—
—
Contributions from noncontrolling interests —
—
—
—
—
—
1.0
Tax expense on share-based compensation —
—
(3.4 ) —
—
—
—
Repurchase of shares —
—
—
—
—
(2.0 ) —
Share-based compensation cost —
—
37.3
—
—
—
—
Net other comprehensive loss —
—
—
—
6.5
—
—
BALANCE, December 31, 2016 310.3
31.1
6,402.2
1,864.1
19.0
(65.8 ) 4.4
Net loss —
—
—
(303.7 ) —
—
(.5 )
Dividends paid ($0.04 per share) —
—
—
(13.6 ) —
—
—
Cumulative-effect reduction from adoption of ASU 2016-16 —
—
—
(14.1 ) —
—
—
Distributions to noncontrolling interests —
—
—
—
—
—
(6.0 )
Equity issuance in connection with Atwood Merger 132.2
13.2
757.5
—
—
—
—
Shares issued under share-based compensation plans, net 4.5
.5
(.4 ) —
—
(1.3 ) —
Repurchase of shares —
—
—
—
—
(1.9 ) —
Share-based compensation cost —
—
35.7
—
—
—
—
Net other comprehensive income —
—
—
—
9.6
—
—
BALANCE, December 31, 2017 447.0
44.8
7,195.0
1,532.7
28.6
(69.0 ) (2.1 )
Net loss —
—
—
(639.7 ) —
—
3.1
Dividends paid ($0.04 per share) —
—
—
(18.0 ) —
—
—
Cumulative-effect reduction from adoption of ASU 2018-02 —
—
—
(.8 ) .8
—
—
Shares issued under share-based compensation plans, net 13.7
1.4
(.6 ) —
—
(1.3 ) —
Distributions to noncontrolling interests —
—
—
—
—
—
(3.6 )
Repurchase of shares —
—
—
—
—
(1.9 ) —
Share-based compensation cost —
—
30.6
—
—
—
—
Net other comprehensive income —
—
—
—
(11.2 ) —
—
BALANCE, December 31, 2018 460.7
$ 46.2
$ 7,225.0
$ 874.2
$ 18.2
$ (72.2 ) $ (2.6 )


	Shares	Par Value		Additional Paid-in Capital		Warrants		Retained Earnings (Deficit)		AOCI		Treasury Shares		Non-controlling Interest
BALANCE, December 31, 2020 (Predecessor)	206.1	82.6		8,639.9		—		(4,183.8)		(87.9)		(76.2)		(4.3)
Net income (loss)	—	—		—		—		(4,467.0)		—		—		3.2
Shares issued under share-based compensation plans, net	—	—		(0.7)		—		—		—		0.7		—
Net changes in pension and other postretirement benefits	—	—		—		—		—		0.1		—		—
Share-based compensation cost	—	—		4.8		—		—		—		—		—
Net other comprehensive loss	—	—		—		—		—		(5.6)		—		—
Cancellation of Predecessor equity	(206.1)	(82.6)		(8,644.0)		—		8,650.8		93.4		75.5		—
Issuance of Successor Common Shares and Warrants	75.0	0.8		1,078.7		16.4		—		—		—		—
BALANCE, April 30, 2021 (Predecessor)	75.0	0.8		1,078.7		16.4		—		—		—		(1.1)


BALANCE, May 1, 2021 (Successor)	75.0	0.8		1,078.7		16.4		—		—		—		(1.1)
Net income (loss)	—	—		—		—		(33.0)		—		—		3.8
Net changes in pension and other postretirement benefits	—	—		—		—		—		(9.1)		—		—

Share-based compensation cost	—	—		4.3				—		—		—		—
BALANCE, December 31, 2021 (Successor)	75.0	$	0.8	$	1,083.0	$	16.4	$	(33.0)	$	(9.1)	$	—	$	2.7

In ~~October 2017, as a result of~~connection with the ~~Atwood Merger,~~Rowan Transaction on April 11, 2019, we issued 132.2 million of our Class A Ordinary shares, representing total equity consideration of $770.7 million based on a closing price of $5.83 per Class A ordinary share on October 5, 2017, the last trading day before the Merger Date.

~~In April, 2016, we closed an underwritten public offering of 65,550,000 Class A ordinary shares at $9.25 per share. We received net proceeds from the offering of $585.5 million.~~

In October 2016, we entered into a privately-negotiated exchange agreement whereby we issued 1,822,432 Class A ordinary shares, representing less than one percent of our outstanding Class A ordinary shares, in exchange for $24.5 million principal amount of our 2044 Notes, resulting in a pre-tax gain from debt extinguishment of $8.8 million.

As a U.K. company governed in part by the Companies Act, we cannot issue new shares (other than in limited circumstances) without being authorized by our shareholders. At our 2018 annual general meeting, our shareholders authorized the allotment of 145.688.3 million Class A ordinary shares ~~(or 291.2~~with an aggregate value of $1.4 billion. See "Note 5 - Rowan Transaction" for additional information.

Valaris Limited Share Capital

As of the Effective Date, the authorized share capital of Valaris Limited is $8.5 million divided into 700 million Common Shares of a par value of $0.01 each and 150 million preference shares of a par value of $0.01.

Issuance of Common Shares

On the Effective Date, pursuant to the plan of reorganization, we issued 75 million Common Shares.

Cancellation of Predecessor Equity and Issuance of Warrants

On the Effective Date and pursuant to the plan of reorganization, the Legacy Valaris Class A ordinary shares ~~in connection with an offer by way~~were cancelled and the Company issued 5,645,161 Warrants to the former holders of ~~a rights issue or other similar issue). This authority was further increased by shareholders~~the Company's equity interests outstanding prior to the Effective Date. The Warrants are exercisable for one Common Share per Warrant at an ~~additional general meeting on February 21, 2019, expiring at~~initial exercise price of $131.88 per Warrant, in each case as may be adjusted from time to time pursuant to the ~~next annual shareholder meeting or at the close~~applicable warrant agreement. The Warrants are exercisable for a period of ~~business~~seven years and will expire on April ~~22, 2020 (whichever is earlier).~~29, 2028. The exercise of these Warrants into Common Shares would have a dilutive effect to the holdings of Valaris Limited's existing shareholders.

~~Under English law, we are only able to declare dividends and return funds to our shareholders out~~

144

Management Incentive Plan

In accordance with the plan of reorganization, Valaris Limited adopted the MIP as of the ~~accumulated distributable reserves~~Effective Date and authorized and reserved 8,960,573 Common Shares for issuance pursuant to equity incentive awards to be granted under the MIP, which may be in the form of incentive stock options, nonstatutory stock options, restricted stock, restricted stock units, stock appreciation rights, dividend equivalents and cash awards or any combination thereof. See "Note 12 - Share Based Compensation" for information on ~~our statutory balance sheet. The declaration~~equity awards granted under the MIP subsequent to the Effective Date.

12. SHARE BASED COMPENSATION

On the Effective Date and ~~amount~~pursuant to the plan of ~~future dividends is at~~reorganization, all of the ~~discretion~~Predecessor's ordinary shares were cancelled. In accordance with the plan of ~~our Board of Directors and will depend on our profitability, liquidity, financial condition, market outlook, reinvestment opportunities, capital requirements~~reorganization, all agreements, instruments and other ~~factors and restrictions our Board~~documents evidencing, relating or otherwise connected with any of ~~Directors deems relevant. There can be no assurance that we will pay a dividend in~~Legacy Valaris' equity interests outstanding prior to the ~~future.~~

~~Our shareholders approved a new share repurchase program at our annual shareholder meeting held in May 2018. Subject to certain provisions under English law,~~Effective Date, including the requirement of Ensco plc to have sufficient distributable reserves, we may repurchase shares up to a maximum of $500.0 million in the aggregate from one or more financial intermediaries under the program, but in no case more than 65.0 million shares. The program terminates in May 2023. Our prior share repurchase program approved by our shareholders in 2013, under which we could repurchase up to a maximum of $2.0 billion in the aggregate, not to exceed 35.0 million shares, expired in May 2018. As of December 31, 2018, there had been no share repurchases under this program.

~~9. BENEFIT PLANS~~

~~In May 2018, our shareholders approved the~~all equity-based awards, were cancelled. Therefore, any Predecessor remaining long-term incentive plans were cancelled, including Legacy Valaris's 2018 Long-Term Incentive Plan (the "2018 LTIP") ~~effective January 1, 2018, to provide for~~as well as plans assumed in the ~~issuance of non-vested share awards, share option awards~~Rowan Transaction ("Rowan LTIP") and performance awards (collectively "awards"). The 2018 LTIP is similar to and replaces the Company's previously adopted 2012 Long-Term Incentive Plan (the “2012 LTIP”). No further awards will be granted under the 2012 LTIP. Under the 2018 LTIP, 59.0 million shares were reserved for issuance as awards to officers, non-employee directors and key employees who are in a position to contribute materially to our growth, development and long-term success. As of December 31, 2018, there were 34.0 million shares available for issuance as awards under the 2018 LTIP. Awards may be satisfied by newly issued shares, including shares held by a subsidiary or affiliated entity, or by delivery of shares held in an affiliated employee benefit trust at the Company's discretion.

In connection with the Atwood Merger ~~we assumed Atwood’s Amended and Restated 2007 Long-Term Incentive Plan~~ (the “Atwood LTIP”), and together with the 2018 LTIP and the Rowan LTIP, the "Legacy LTIPs"). See "Note 2 - Chapter 11 Proceedings" for additional information.

In accordance with the plan of reorganization, Valaris Limited adopted the MIP as of the Effective Date and authorized and reserved 8,960,573 Common Shares for issuance pursuant to equity incentive awards to be granted under the MIP, which may be in the form of incentive stock options, ~~outstanding thereunder.~~nonstatutory stock options, restricted stock, restricted stock units, stock appreciation rights, dividend equivalents and cash awards or any combination thereof. As of December 31, ~~2018,~~2021, there were ~~1.4 million~~7,493,135 shares ~~remaining~~ available for ~~future~~ issuance ~~as awards~~ under the ~~Atwood LTIP, which may be granted to employees and other service providers who were not employed or engaged with Ensco prior to the Atwood Merger.~~MIP.

Non-Vested Share Awards, ~~and~~ Cash-Settled Awards and Non-employee Director Awards

~~Grants~~Successor Awards

Under the Company's MIP, time-based restricted stock unit awards were granted to certain employees and senior officers which vest ratably over a three year period from the date of grant. The grant-date fair value per share for these time-based restricted stock awards was equal to the closing price of the Company's stock on the grant date. For senior officers, delivery of the shares underlying vested restricted stock awards is deferred until the third anniversary of the date of grant.

Non-employee directors received a one-time grant of time-based restricted awards upon our emergence from the Chapter 11 Cases which vest ratably over a three year period from the date of grant. Additionally, non-employee directors received an annual grant of time-based restricted awards which vest in full on the earlier of the first anniversary of the grant date or the next annual meeting of shareholders following the grant. Non-employee directors are permitted to elect to receive deferred share awards ~~and share units (collectively "share awards") and share units to~~which can be settled ~~in cash ("cash-settled awards"), generally vest~~and delivered at ~~rates of 20% or 33% per year, as determined by a committee or subcommittee~~the vesting date, six-month anniversary following the termination of the ~~Board of Directors at~~director's service or a specific pre-determined date.

During the ~~time of grant. During 2018, we granted 114,000 cash-settled awards and 6.3~~eight months ended December 31, 2021 (Successor), 1.1 million share unit awards were granted to our employees and non-employee directors pursuant to the ~~2018 LTIP.~~ MIP. No cash-settled awards were granted during this period under the MIP.

Our non-vested share awards do not have voting or participating rights as the dividend equivalent provided for in the award agreement is forfeitable (except in certain limited circumstances) and ~~dividend rights effective on the date of grant,~~further our debt agreements limit our ability to pay dividends and ~~our non-vested share units~~none have ~~dividend rights effective on the date of grant.~~been declared. Compensation expense for share awards is measured at fair value on the date of grant and recognized on a straight-line basis over the requisite service period (usually the vesting period). Our compensation cost is reduced for forfeited awards in the period in which the forfeitures occur.

145

Predecessor Awards

The Predecessor granted share awards and share units (collectively "share awards") and share units to be settled in cash ("cash-settled awards"), which generally vested at a rate of 33% per year, as determined by the compensation committee of Legacy Valaris' Board of Directors at the time of grant. Additionally, non-employee directors were permitted to elect to receive deferred share awards. Deferred share awards vested at the earlier of the first anniversary of the grant date or the next annual meeting of shareholders following the grant but were not to be settled until the director terminated service from the Board. Deferred share awards were to be settled in cash, shares or a combination thereof at the discretion of the compensation committee.

During the four months ended April 30, 2021 (Predecessor), no share unit awards or cash-settled awards were granted.

Predecessor's non-vested share awards had voting and dividend rights effective on the date of grant, and the non-vested share units had dividend rights effective on the date of grant. Compensation expense for share awards was measured at fair value on the date of grant and recognized on a straight-line basis over the requisite service period (usually the vesting period). Compensation expense for cash-settled awards iswas remeasured each quarter with a cumulative adjustment to compensation cost during the period based on changes in ~~our~~the Legacy Valaris share price. ~~Our compensation~~Compensation cost iswas also reduced for forfeited awards in the period in which the forfeitures ~~occur.~~occurred.

As discussed above, in accordance with the plan of reorganization, the unvested awards of employees, senior executive officers and non-employee directors remaining on the Effective Date were cancelled for no consideration.

The following table summarizes share award and cash-settled award compensation expense recognized ~~during each~~

(in millions):


	Successor		Predecessor
	Eight Months Ended December 31, 2021		Four Months Ended April 30, 2021		Year Ended December 31, 2020		Year Ended December 31, 2019
Contract drilling	$	1.6	$	2.4	$	10.7	$	22.1
General and administrative	2.0		2.4		9.2		17.4
	3.6		4.8		19.9		39.5
Tax benefit	(0.2)		(0.5)		(1.8)		(2.5)
Total	$	3.4	$	4.3	$	18.1	$	37.0

As of ~~the years in the three-year period ended~~ December 31, ~~2018 (in millions):~~2021, there was $19.9 million of total estimated unrecognized compensation cost related to Successor share awards, which has a weighted-average remaining vesting period of 1.7 years.

146

2018 2017 2016
Contract drilling $ 18.9
$ 18.3
$ 19.9
General and administrative 14.5
14.5
16.6
33.4
32.8
36.5
Tax benefit (2.8 ) (4.8 ) (5.9 )
Total $ 30.6
$ 28.0
$ 30.6

The following ~~table~~tables summarizes the value of share awards and cash-settled awards granted and vested:


	Share Awards
	Successor		Predecessor
	Eight Months Ended December 31, 2021		Four Months Ended April 30, 2021		Year Ended December 31, 2020		Year Ended December 31, 2019
Weighted-average grant-date fair value of share awards granted (per share) (1)	$	26.07	$	—	$	3.07	$	11.50
Total fair value of share awards vested during the period (in millions) (2)	$	—	$	0.02	$	3.26	$	17.70

(1)During the four months ended April 30, 2021 (Predecessor), no share unit awards were granted.

(2)No share awards vested during ~~each of~~ the ~~years in the three-year period~~eight months ended December 31, ~~2018:~~2021 (Successor).


	Cash-Settled Awards
		Successor		Predecessor
		Eight Months Ended December 31, 2021		Four Months Ended April 30, 2021		Year Ended December 31, 2020		Year Ended December 31, 2019
Weighted-average grant-date fair value of share awards granted (per share) (1)		$	—	$	—	$	0.75	$	—
Total fair value of share awards vested during the period (in millions) (2)		$	—	$	—	$	0.22	$	3.50

(1)During the eight months ended December 31, 2021 (Successor), four months ended April 30, 2021 (Predecessor) and year ended December 31, 2019 (Predecessor) no cash-settled awards were granted.

(2)During the eight months ended December 31, 2021 (Successor), no cash-settled awards were vested.

147

Share Awards Cash-Settled Awards
2018 2017 2016 2018 2017 2016
Weighted-average grant-date fair value of share awards granted (per share) $ 6.16
$ 7.90

$ 10.42
$ 5.31
$ 6.27
$ 9.64
Total fair value of share awards vested during the period (in millions) $ 7.5
$ 8.6

$ 8.8
$ 9.9
$ 3.9
$ —

The following table summarizes share awards and cash-settled awards activity for the ~~year~~four months ended April 30, 2021 (Predecessor) and eight months ended December 31, ~~2018~~2021 (Successor) (shares in thousands):


	Share Awards			Cash-settled Awards
	Awards	Weighted-Average Grant-Date Fair Value		Awards	Weighted-Average Grant-Date Fair Value
Share awards and cash-settled awards as of December 31, 2020 (Predecessor)	2,982	$	16.40	311	$	22.74

Vested	(195)	16.93		(25)	11.35
Forfeited	(295)	32.98		(5)	29.18
Cancelled	(2,492)	14.25		(281)	23.65
Share awards and cash-settled awards as of April 30, 2021 (Predecessor)	—	$	—	—	$	—

Share awards and cash-settled awards as of May 1, 2021 (Successor)	—	$	—	—	$	—
Granted	1,050	26.07		—	—

Forfeited	(192)	25.02		—	—
Share awards and cash-settled awards as of December 31, 2021 (Successor)	858	$	26.30	—	$	—

Share Awards Cash-settled Awards
Awards
Weighted-Average
Grant-Date
Fair Value
Awards
Weighted-Average
Grant-Date
Fair Value
Share awards and cash-settled awards as of December 31, 2017 3,305
$ 16.06
7,089
$ 7.37
Granted 6,298
6.16
114
5.31
Vested (1,312 ) 19.85
(1,512 ) 7.53
Forfeited (225 ) 11.62
(574 ) 7.18
Share awards and cash-settled awards as of December 31, 2018 8,066
$ 7.84
5,117
$ 7.30

~~As of December 31, 2018, there was $63.5 million of total unrecognized compensation cost related to share awards, which is expected to be recognized over a weighted-average period of 3.5 years.~~

~~Share Option Awards~~

Share option awards ("options") granted to employees generally become exercisable in 25% increments over a four-year period or 33% increments over a three-year period and, to the extent not exercised, expire on either the seventh or tenth anniversary of the date of grant. The exercise price of options granted under the 2018 LTIP equals the market value of the underlying shares on the date of grant. As of December 31, 2018, options granted to purchase 691,852 shares with a weighted-average exercise price of $25.46 were outstanding under the 2018 LTIP and predecessor or acquired plans. Excluding options assumed under the Atwood LTIP, no options have been granted since 2011, and there was no unrecognized compensation cost related to options as of December 31, 2018.

Performance Awards

Successor Awards

Under the ~~2018 LTIP,~~Company's MIP, performance awards may be issued to our senior executive officers. ~~Performance~~The 2021 performance awards are allocated based on three performance goals and subject to achievement of ~~specified~~those performance goals based on ~~relative total shareholder return ("TSR"~~(a) designated share price hurdles whereby our closing stock price must equal or exceed certain market price targets for ninety consecutive trading days (the "Market-Based Objectives") ~~and~~; (b) relative return on capital employed ("ROCE") as compared to a specified peer ~~group. The performance~~group, all as defined in the award agreements (the "ROCE Objective"), and (c) specified strategic goals ~~are determined~~as established by a committee ~~or subcommittee~~ of the Board of ~~Directors.~~Directors (the "Strategic Goal Objective" and together with the ROCE Objective, the "Performance-Based Objectives"). Awards are payable in ~~either Ensco shares or cash upon~~equity following a three-year performance period and subject to attainment of relative ~~TSR~~Market-Based Objectives and ~~ROCE~~Performance-Based Objectives ranging from 0% to 150% of target performance ~~goals. Performance awards granted during 2017 and 2018 are payable in cash while performance awards granted in 2016 are payable in Ensco shares.~~under such objectives.

Performance awards generally vest at the end of a three-year measurement period based on attainment of performance goals. Our performance awards granted during 2016 are classified as equity awards and awards granted during 2017 and 2018 are classified as liability awards, all with compensation expense recognized over the requisite service period. The estimated probable outcome of attainment of the specified performance goals is based primarily on relative performance over the requisite performance period. Any subsequent changes in this estimate ~~for~~as it relates to the ~~relative ROCE performance goal for the 2016 awards and both the ROCE and TSR performance goals for the 2017 and 2018 awards~~Performance-Based Objectives are recognized as a cumulative adjustment to compensation cost in the period in which the change in estimate occurs. Compensation cost for the Market-Based Objectives is recognized as long as the requisite service period is completed and will not be reversed even if the Market-Based Objectives are never satisfied. Compensation expense for performance awards is recognized over the requisite service period using the accelerated method and is reduced for forfeited awards in the period in which the forfeitures occur.

148

The fair value of the 2021 performance awards granted during the eight months ended December 31, 2021 (Successor) are measured on the date of grant. The grant-date fair value per unit for the portion of the performance awards related to Performance-Based Objectives was equal to the closing price of the Company's stock on the grant date. The portion of these awards that were based on the Company's achievement of Market-based Objectives were valued at the date of grant using a Monte Carlo simulation with the following weighted average assumptions for the grants made over the eight months ended December 31, 2021:


Expected price volatility	61	%
Expected dividend yield	—

Risk-free interest rate	0.73	%

The expected price volatility assumption is estimated using market data for certain peer companies during periods in which our own trading history is limited. As our trading history increases, it will bear greater weight in determining our expected price volatility assumption.

The following table summarizes the performance award activity for the eight months ended December 31, 2021 (Successor) (shares in thousands):


	Awards	Weighted Average Grant Date Fair Value Price
Balance as of May 1, 2021 (Successor)	—	—
Granted - Market-Based Objectives (1)	984	12.09
Granted - Performance-Based Objectives (1)	328	27.44
Total Granted	1,312	15.93

Forfeited - Market-Based Objectives	(527)	11.04
Forfeited - Performance-Based Objectives	(176)	25.02
Total Forfeited	(703)	14.54
Balance as of December 31, 2021 (Successor)	609	17.53

(1)The number of awards granted reflects the shares that would be granted if the target level of performance were to be achieved. The number of shares actually issued after considering forfeitures may range from zero to 913,585.

During the eight months ended December 31, 2021 (Successor), we recognized of $0.7 million of compensation expense for performance awards, which was included in General and administrative expense in our Consolidated Statements of Operations.

As of December 31, 2021, there was $13.0 million of total estimated unrecognized compensation cost related to share awards, which has a weighted-average remaining vesting period of 2.6 years.

Predecessor Awards

Under the 2018 LTIP, performance awards were permitted to be issued to senior executive officers. The 2019 performance awards were subject to achievement of specified performance goals based on both relative and absolute total shareholder return ("TSR"). The 2020 performance awards were forfeited in exchange for cash-based incentive and retention awards.

149

The performance goals were determined by a committee of the Board of Directors and the awards were payable in cash upon attainment of relative performance goals.

Performance awards generally vest at the end of a three-year measurement period based on attainment of performance goals. Performance awards granted during 2019 were classified as liability awards, all with compensation expense recognized over the requisite service period. The estimated probable outcome of attainment of the specified performance goals was based primarily on relative performance over the requisite performance period. Any subsequent changes in this estimate were recognized as a cumulative adjustment to compensation cost in the period in which the change in estimate occurred.

The aggregate grant-date fair value of performance awards granted during ~~2018, 2017 and 2016 totaled~~2019 was $6.7 ~~million, $6.7 million and $6.1 million, respectively.~~million. Subsequent to issuance, the 2020 performance awards were forfeited. The aggregate fair value of performance awards vested during ~~2018, 2017~~2020 and ~~2016~~2019 (Predecessor) totaled ~~$0.7 million, $2.9~~$5.2 million and ~~$2.8~~$2.2 million, respectively.

During the years ended December 31, ~~2018, 2017~~2020 and ~~2016,~~2019 (Predecessor) we recognized ~~$8.2 million, $8.4~~$1.0 million and ~~$3.1~~$3.2 million of compensation expense for performance awards, respectively, which was included in ~~general~~General and administrative expense in our ~~consolidated statements~~Consolidated Statements of ~~operations.~~Operations. No compensation expense was recognized in connection with these awards during the four months ended April 30, 2021 (Predecessor), or the eight months ended December 31, 2021 (Successor) as per the terms of these awards no amount could be or can be earned due to the TSR provisions of the award. While this award was not cancelled in accordance with the plan of reorganization, it has no value.

Share Appreciation Rights

Predecessor Awards

Share Appreciation Rights ("SARs") granted to employees generally became exercisable in 33% increments over a three-year period and, to the extent not exercised, expired on the tenth anniversary of the date of grant. The exercise price of SARs granted under the Rowan LTIP equals the excess of the market value of the underlying shares on the date of exercise over the market value of the shares on date of grant multiplied by the number of shares covered by the SAR. The Predecessor had accounted for SARs as equity awards. No SARs had been granted since 2013 under the Rowan LTIP. As of December 31, ~~2018, there was $10.3 million~~2020, SARs granted to purchase 426,049 shares were outstanding under the Rowan LTIP. During the four months ended April 30, 2021 (Predecessor), 106,408 of ~~total unrecognized compensation cost related~~SARs expired unexercised, and as discussed above, in accordance with the plan of reorganization, the remaining outstanding SARs were cancelled.

Share Option Awards

Predecessor Awards

Share option awards granted to ~~unvested performance awards, which is expected to be recognized~~employees generally became exercisable in 25% increments over a four-year period or 33% increments over a three-year period or 100% after a four-year period and, to the extent not exercised, expired on either the seventh or tenth anniversary of the date of grant. The exercise price of options granted under the 2018 LTIP equaled the market value of the underlying shares on the date of grant. Excluding options assumed under the Atwood LTIP and Rowan LTIP, no options have been granted since 2011. As of December 31, 2020, options granted to purchase 318,377 shares were outstanding under the Legacy LTIPs. As discussed above, in accordance with the plan of reorganization, these outstanding options were cancelled.

150

13. PENSION AND OTHER POST-RETIREMENT BENEFITS

Prior to the Rowan Transaction, Rowan established various defined-benefit pension plans and a post-retirement health and life insurance plan that provide benefits upon retirement for certain full-time employees. The defined-benefit pension plans include: (1) the Rowan Pension Plan; (2) Restoration Plan of Rowan Companies, Inc. (the “Rowan SERP”); (3) the Norway Onshore Plan; and (4) the Norway Offshore Plan. The Retiree Life & Medical Supplemental Plan of Rowan Companies, Inc. (the “Retiree Medical Plan”) provides post-retirement health and life insurance benefits. On November 27, 2017, Rowan purchased annuities to cover post-65 retiree medical benefits for current retirees as of the purchase date. The annuity purchase settled post-65 medical benefits (i.e., Health Reimbursement Account, or “HRA”, amounts) for affected participants, with the insurer taking responsibility for all benefit payments on and after January 1, 2019.

As a result of the Rowan Transaction, we assumed these plans and obligations, which were remeasured as of the Transaction Date. Each of the plans has a benefit obligation that exceeds the fair value of plan assets. The most significant of the assumed plans is the Rowan Pension Plan. Prior to the Transaction Date, Rowan amended the Rowan Pension Plan to freeze the plan as to any future benefit accruals. As a result, eligible employees no longer receive pay credits in the pension plan and newly hired employees are not eligible to participate in the pension plan.

Effective July 1, 2021, we amended the SERP to provide for quarterly credits of an interest equivalent based upon the rate of interest paid on ten-year United States treasury notes in November of the immediately preceding calendar year and the participant plan balances as of the first day of such quarter and began accounting for this plan as a defined benefit plan.

The following table presents the changes in benefit obligations and plan assets for the eight months ended December 31, 2021 (Successor), the four months ended April 30, 2021 (Predecessor) and the year ended December 31, 2020 (Predecessor) and the funded status and weighted-average ~~period~~assumptions used to determine the benefit obligation at the measurement date (dollars in millions):


	Successor						Predecessor
	Eight Months Ended December 31, 2021						Four Months Ended April 30, 2021						Year Ended December 31, 2020
	Pension Benefits		Other Benefits		Total		Pension Benefits		Other Benefits		Total		Pension Benefits		Other Benefits		Total
Projected benefit obligation:
BALANCE at the beginning of the period	$	826.1	$	14.8	$	840.9	$	886.7	$	15.9	$	902.6	$	832.4	$	16.1	$	848.5
Interest cost	15.3		0.3		15.6		6.5		0.1		6.6		24.9		0.5		25.4
Service cost	—		—		—		—		—		—		.1		—		0.1
Actuarial loss (gain)	20.6		(4.2)		16.4		(55.0)		(1.0)		(56.0)		97.8		(0.1)		97.7
Plan settlements	(25.9)		—		(25.9)		—		—		—		(6.6)		—		(6.6)
Plan curtailments	—		—		—		—		—		—		(3.3)		—		(3.3)
Plan amendments	0.2		—		0.2		—		—		—		—		—		—
Benefits paid	(25.7)		(0.3)		(26.0)		(12.1)		(0.2)		(12.3)		(58.6)		(0.6)		(59.2)
Net transfer in/(out) (including the effect of any business combinations/divestitures)	17.3		5.0		22.3		—		—		—		—		—		—

BALANCE at the end of the period	$	827.9	$	15.6	$	843.5	$	826.1	$	14.8	$	840.9	$	886.7	$	15.9	$	902.6

151


Plan assets
Fair value, at the beginning of the period	$	652.0		$	—		$	652.0	$	603.1		$	—		$	603.1	$	598.9		$	—		$	598.9
Actual return	31.8			—			31.8		38.5			—			38.5		57.9			—			57.9
Employer contributions	2.4			—			2.4		22.5			—			22.5		11.5			—			11.5
Plan settlements	(25.9)			—			(25.9)		—			—			—		(6.6)			—			(6.6)
Benefits paid	(25.7)			—			(25.7)		(12.1)			—			(12.1)		(58.6)			—			(58.6)

Fair value, at the end of the period	$	634.6		$	—		$	634.6	$	652.0		$	—		$	652.0	$	603.1		$	—		$	603.1
Net benefit liabilities	$	193.3		$	15.6		$	208.9	$	174.1		$	14.8		$	188.9	$	283.6		$	15.9		$	299.5

Amounts recognized in Consolidated Balance Sheet:
Accrued liabilities	$	(3.8)		$	(1.1)		$	(4.9)	$	(1.4)		$	(1.4)		$	(2.8)	$	(1.5)		$	(1.4)		$	(2.9)
Other liabilities (long-term)	(189.5)			(14.5)			(204.0)		(172.7)			(13.4)			(186.1)		(282.1)			(14.5)			(296.6)
Net benefit liabilities	$	(193.3)		$	(15.6)		$	(208.9)	$	(174.1)		$	(14.8)		$	(188.9)	$	(283.6)		$	(15.9)		$	(299.5)

Accumulated contributions in excess of (less than) net periodic benefit cost	$	(180.0)		$	(19.8)		$	(199.8)	$	(174.1)		$	(14.8)		$	(188.9)	$	(179.6)		$	(15.8)		$	(195.4)

Amounts not yet reflected in net periodic benefit cost:
Actuarial gain (loss)	(13.1)			4.2			(8.9)		—			—			—		(104.0)			$	(0.1)		(104.1)
Prior service credit (cost)	(0.2)			—			(0.2)		—			—			—		—			—			—
Total accumulated other comprehensive income (loss)	$	(13.3)		$	4.2		$	(9.1)	$	—		$	—		$	—	$	(104.0)		$	(0.1)		$	(104.1)
Net benefit liabilities	$	(193.3)		$	(15.6)		$	(208.9)	$	(174.1)		$	(14.8)		$	(188.9)	$	(283.6)		$	(15.9)		$	(299.5)

Weighted-average assumptions:
Discount rate	2.73		%	2.72		%			2.84		%	2.73		%			2.30		%	2.19		%
Cash balance interest credit rate	3.05		%	N/A					2.94		%	N/A					2.94		%	N/A

The unfunded obligation increased by $20.0 million as of ~~1.9~~December 31, 2021 when compared to the unfunded obligation as of April 30, 2021. The increase was primarily attributable to the unfunded obligation under the SERP, having a balance of $16.2 million at December 31, 2021, which was transferred in as of July 1, 2021. Additionally, a decline in the discount rate and the impact of updated census data contributed to the increase in the unfunded obligation in the amount of $9.2 million and $13.2 million, respectively. This was partially offset by higher than expected return on plan assets of $7.1 million, and employer contributions of $2.4 million during the eight months ended December 31, 2021.

The unfunded obligation decreased by $110.6 million as of April 30, 2021 when compared to the unfunded obligation as of December 31, 2020. The decrease was primarily attributable to the remeasurement of the pension and other post-retirement benefit plans at the Effective Date in fresh start accounting of $82.7 million due to an increase in the discount rate and higher than expected return on plan assets of approximately$56 million and $26 million, respectively. See "Note 3 - Fresh Start Accounting" for more information on the remeasurement of the pension and other post-retirement benefit plans. Additionally, employer contributions of $22.5 million made during the four months ended April 30, 2021 (Predecessor) drove a further decline in the unfunded obligation.

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The projected benefit obligations for pension benefits in the preceding table reflect the actuarial present value of benefits accrued based on services rendered to date assuming the actual or assumed expected date of separation for retirement.

The accumulated benefit obligations, which are presented below for all plans in the aggregate at December 31, 2021 and 2020, are based on services rendered to date, but exclude the effect of future salary increases (in millions):


	Successor		Predecessor
	2021		2020
Accumulated benefit obligation	$	843.5	$	902.6

The components of net periodic pension, retiree medical cost and the weighted-average assumptions used to determine net periodic pension and retiree medical cost were as follows (dollars in millions):


	Successor			Predecessor
	Eight Months Ended December 31, 2021			Four Months Ended April 30, 2021			Year Ended December 31, 2020			April 11, 2019 - December 31, 2019
Service cost (1)	$	—		$	—		0.1			1.5
Interest cost (2)	15.6			6.6			25.4			21.3
Expected return on plan assets (2)	(24.7)			(12.1)			(36.5)			(27.1)
Curtailment gain recognized (2)	—			—			(3.3)			—
Settlement (gain) loss recognized (2)	0.4			—			(0.3)			—
Amortization of net loss (2)	—			0.1			—			—
Net periodic pension and retiree medical cost (income)	$	(8.7)		$	(5.4)		$	(14.6)		$	(4.3)
Discount rate	2.84		%	2.30		%	3.16		%	3.82		%
Expected return on assets	6.03		%	6.03		%	6.48		%	6.70		%
Cash balance interest credit rate	2.94		%	2.94		%	3.29		%	3.29		%

(1) Included in Contract drilling and General and administrative expense in our Consolidated Statements of Operations.

(2) Included in Other, net, in our Consolidated Statements of Operations.

Settlement accounting is necessary when actual lump sums paid during a fiscal year exceed the sum of the service cost and interest cost for the year. The settlement threshold was reached for the Rowan Pension Plan and we recognized a settlement charge of $0.4 million in our Consolidated Statements of Operations during the eight months ended December 31, 2021 (Successor).

In March 2021, the American Rescue Plan Act of 2021 ("ARPA-21") was passed. ARPA-21 provides funding relief for U.S. qualified pension plans which should lower pension contribution requirements over the next few years. As a result, we did not make contributions to certain plans in 2021. However, we currently expect to contribute approximately $3.8 million to our pension plans and to directly pay other post-retirement benefits of approximately $1.2 million in 2022. These amounts represent the minimum contributions we are required to make under relevant statutes. We do not expect to make contributions in excess of the minimum required amounts.

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The pension plans' investment objectives for fund assets are: to achieve over the life of the plans a return equal to the plans' expected investment return or the inflation rate plus 3%, whichever is greater, to invest assets in a manner such that contributions are minimized and future assets are available to fund liabilities, to maintain liquidity sufficient to pay benefits when due, and to diversify among asset classes so that assets earn a reasonable return with an acceptable level of risk. The plans employ several active managers with proven long-term records in their specific investment discipline.

Target allocations among asset categories and the fair value of each category of plan assets as of December 31, 2021 and 2020, classified by level within the fair value hierarchy are presented below. The plans will reallocate assets in accordance with the allocation targets, after giving consideration to the expected level of cash required to pay current benefits and plan expenses (dollars in millions):


	Target range	Total		Quoted prices in active markets for identical assets (Level 1)		Significant observable inputs (Level 2)		Significant unobservable inputs (Level 3)
December 31, 2021 (Successor)
Equities:	53% to 69%
U.S. large cap	22% to 28%	$	173.7	$	—	$	173.7	$	—
U.S. small cap	4% to 10%	44.7		—		44.7		—
International all cap	21% to 29%	159.1		—		159.1		—
International small cap	2% to 8%	41.7		—		41.7		—
Real estate equities	0% to 13%	63.5		—		63.5		—
Fixed income:	25% to 35%
Aggregate	9% to 19%	73.1		—		73.1		—
Core plus	9% to 19%	74.3		74.3		—		—
Cash and equivalents	0% to 10%	4.5		4.5		—		—
Group annuity contracts		—		—		—		—
Total		$	634.6	$	78.8	$	555.8	$	—


December 31, 2020 (Predecessor)
Equities:	53% to 69%
U.S. large cap	22% to 28%	$	151.9	$	—	$	151.9	$	—
U.S. small cap	4% to 10%	48.1		—		48.1		—
International all cap	21% to 29%	158.5		—		158.5		—
International small cap	2% to 8%	37.0		—		37.0		—
Real estate equities	0% to 13%	53.5		—		53.5		—
Fixed income:	25% to 35%
Aggregate	9% to 19%	74.3		—		74.3		—
Core plus	9% to 19%	75.8		75.8		—		—
Cash and equivalents	0% to 10%	4.0		4.0		—		—
Group annuity contracts		—		—		—		—
Total		$	603.1	$	79.8	$	523.3	$	—

154

Assets in the U.S. equities category include investments in common and preferred stocks (and equivalents such as American Depository Receipts and convertible bonds) and may be held through separate accounts, commingled funds or an institutional mutual fund. Assets in the international equities category include investments in a broad range of international equity securities, including both developed and emerging markets, and may be held through a commingled or institutional mutual fund. The real estate category includes investments in pooled and commingled funds whose objectives are diversified equity investments in income-producing properties. Each real estate fund is intended to provide broad exposure to the real estate market by property type, geographic location and size and may invest internationally. Securities in both the aggregate and core plus fixed income categories include U.S. government, corporate, mortgage- and asset-backed securities and Yankee bonds, and both categories target an average credit rating of “A” or better at all times. Individual securities in the aggregate fixed income category must be investment grade or above at the time of purchase, whereas securities in the core plus category may have a rating of “B” or above. Additionally, the core plus category may invest in non-U.S. securities. Assets in the aggregate and core plus fixed income categories are held primarily through a commingled fund and an institutional mutual fund, respectively. Group annuity contracts are invested in a combination of equity, real estate, bond and other investments in connection with a pension plan in Norway.

The following is a description of the valuation methodologies used for the pension plan assets as of December 31, 2021:

•Fair values of all U.S. equity securities, the international all cap equity securities and aggregate fixed income securities categorized as Level 2 were held in commingled funds which were valued daily based on a net asset value.

•Fair value of international small cap equity securities categorized as Level 2 were held in a limited partnership fund which was valued monthly based on a net asset value.

•The real estate equities categorized as Level 2 were held in two accounts (a commingled fund and a limited partnership). The assets in the commingled fund were valued monthly based on a net asset value and the assets in the limited partnership were valued quarterly based on a net asset value.

•Cash and equivalents categorized as Level 1 were valued at cost, which approximates fair value.

•Fair value of mutual fund investments in core plus fixed income securities categorized as Level 1 were based on quoted market prices which represent the net asset value of shares held.

To develop the expected long-term rate of return on assets assumption, we considered the current level of expected returns on risk-free investments (primarily government bonds), the historical level of the risk premium associated with the plan's other asset classes and the expectations for future returns of each asset class. The expected return for each asset class was then weighted based upon the current asset allocation to develop the expected long-term rate of return on assets assumption for the plan, which increased to 6.26% at December 31, 2021 (Successor) from 6.03% at December 31, 2020 (Predecessor).

155

Estimated future annual benefit payments from plan assets are presented below. Such amounts are based on existing benefit formulas and include the effect of future service (in millions):


	Pension Benefits		Other Post-Retirement Benefits
Year ended December 31,
2022	$	42.7	$	1.2
2023	42.3		1.2
2024	42.3		1.2
2025	41.8		1.1
2026	41.2		1.0
2027 through 2030	200.2		4.2

Savings Plans

We have savings plans, (the Ensco Savings Plan, the ~~Ensco~~Valaris Multinational Savings Plan, the Valaris Limited Retirement Plan and the ~~Ensco Limited Retirement~~frozen RDIS International Savings Plan), which cover eligible employees as defined within each plan. During 2020, the plan assets of the legacy Rowan savings plans (the Rowan Companies, Inc. Savings & Investment Plan and the Rowan Drilling UK Pension Scheme) were transferred to the Ensco Savings Plan and the Valaris Limited Retirement Plan, respectively. The Ensco Savings Plan includes a 401(k) savings plan feature, which allows eligible employees to make tax-deferred contributions to the ~~plan.~~plans. The ~~Ensco~~Valaris Limited Retirement Plan ~~also~~ allows eligible employees to make tax-deferred contributions to the plan. Contributions made to the ~~Ensco~~Valaris Multinational Savings Plan may or may not qualify for tax deferral based on each plan participant's local tax requirements.

~~We generally make~~Historically, we made matching cash contributions to the plans. ~~We match~~The legacy Ensco plans previously matched 100% of the amount contributed by the employee up to a maximum of 5% of eligible ~~salary.~~salary, where the legacy Rowan plans also provided up to a 5% match of eligible salary; however, depending on the plan and the tier, the match percentage could vary. Matching contributions totaled ~~$14.4 million, $12.2~~$8.8 million and ~~$16.7~~$18.7 million for the years ended December 31, ~~2018, 2017~~2020 and ~~2016,~~2019 (Predecessor), respectively. ~~Any additional discretionary contributions made into the plans require approval~~Effective August 1, 2020, in light of the Board of Directors and are generally paid in cash. We recorded an additional discretionary contribution provision of $19.2 million for the year ended December 31, 2016, which was paid during 2017. Matching contributions and additional discretionary contributions become vested in 33% increments upon completion of each initial year of service with all contributions becoming fully vested subsequent to achievement

~~of three or more years of service. As of January 1, 2019, the plans were modified such that all previously paid~~then current economic environment, we suspended employer ~~contributions became 100% vested and any future employer contributions will vest immediately. We have 1.0 million shares reserved for issuance as~~ matching contributions ~~under~~for the Ensco Savings Plan and the Valaris Multinational Savings Plan. In addition, effective December 1, 2020, the matching contributions in the Valaris Limited Retirement Plan were reduced. Employer contributions were reinstated effective January 1, 2022 whereby 100% of the amount contributed by the employee is matched up to a maximum of 4% of eligible salary.

~~10.~~14. INCOME TAXES

We generated profits of $253.4 million and $373.1 million, losses of ~~$115.1~~$51.0 million and profits of ~~$6.3~~$39.0 million ~~and losses of $151.6 million from continuing operations~~ before income taxes in the U.S. for the eight months ended December 31, 2021 (Successor), the four months ended April 30, 2021 (Predecessor), the years ended December 31, 2020 and 2019 (Predecessor), respectively. We generated losses of ~~$423.8~~$245.2 million, $4.8 billion, $5.1 billion and ~~$202.3~~$102.8 million ~~and profits of $1.1 billion from continuing operations~~ before income taxes in non-U.S. jurisdictions for the eight months ended December 31, 2021 (Successor), the four months ended April 30, 2021 (Predecessor), the years ended December 31, ~~2018, 2017~~2020 and ~~2016,~~2019 (Predecessor), respectively.

156

The ~~following table summarizes~~ components of our provision for income taxes ~~from continuing operations for each of the years in the three-year period ended~~ ~~December 31, 2018~~are summarized as follows (in millions):


											Successor		Predecessor
	2018			2017			2016				Eight Months Ended December 31, 2021		Four Months Ended April 30, 2021		Year Ended December 31, 2020		Year Ended December 31, 2019
Current income tax (benefit) expense:
Current income tax expense (benefit):										Current income tax expense (benefit):
U.S.	$	(19.9	)	$	(2.2	)	$	(6.6	)	U.S.	$	5.5	$	—	$	(135.3)	$	31.3
Non-U.S.	52.9			56.4			86.4			Non-U.S.	53.2		34.4		(18.4)		73.2
	33.0			54.2			79.8				58.7		34.4		(153.7)		104.5
Deferred income tax expense:
Deferred income tax expense (benefit):										Deferred income tax expense (benefit):
U.S.	52.9			36.0			15.9			U.S.	(6.6)		—		(92.9)		19.7
Non-U.S.	3.7			19.0			12.8			Non-U.S.	(14.7)		(18.2)		(12.8)		4.2
	56.6			55.0			28.7				(21.3)		(18.2)		(105.7)		23.9
Total income tax expense	$	89.6		$	109.2		$	108.5
Total income tax expense (benefit)										Total income tax expense (benefit)	$	37.4	$	16.2	$	(259.4)	$	128.4

U.S. Tax Reform and CARES Act

The U.S. Tax Cuts and Jobs Act ("U.S. tax ~~reform~~reform") was enacted on December 22, 2017 and introduced significant changes to U.S. income tax law, ~~including a reduction in the statutory income tax rate from 35% to 21%~~ effective January 1, 2018, a one-time transition tax on deemed repatriation of deferred foreign income, a base erosion anti-abuse tax that effectively imposes a minimum tax on certain payments to non-U.S. affiliates, new and revised rules relating to the current taxation of certain income of foreign subsidiaries and revised rules associated with limitations on the deduction of interest.

2018. Due to the timing of the enactment of U.S. tax reform and the complexity involved in applying its provisions, we made reasonable estimates of its effects and recorded such amounts in our consolidated financial statements as of December 31, 2017 on a provisional basis. Throughout 2018, we continued to analyze applicable information and data, interpret rules and guidance issued by thethe U.S. Treasury Department ~~and Internal Revenue Service, and make adjustments to the provisional amounts as provided for in Staff Accounting Bulletin No. 118. The U.S. Treasury Department is expected to continue~~continued finalizing rules associated with U.S. tax reform during ~~2019~~2018 and ~~when issued, these rules may have a material impact on our consolidated financial statements.~~

2019. During ~~2018,~~2019, we recognized a tax expense of $13.8 million associated with final rules issued related to U.S. tax reform.

The U.S. Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act") was enacted on March 27, 2020 and introduced various corporate tax relief measures into law. Among other things, the CARES Act allows net operating losses ("NOLs") generated in 2019 and 2020 to be carried back to each of the five preceding years. During 2020, we recognized a tax benefit of ~~$11.7~~$122.1 million associated with the ~~one-time transition tax on deemed repatriation~~carryback of ~~the deferred foreign income of our U.S. subsidiaries. We recognized a net tax expense of $16.5 million during the fourth quarter of 2017~~NOLs to recover taxes paid in connection with enactment of U.S. tax reform, consisting of a $38.5 million tax expense associated with the one-time transition tax on deemed repatriation of the deferred foreign income of our U.S. subsidiaries, a $17.3 million tax expense associated with revisions to rules over the taxation of income of foreign subsidiaries, a $20.0 million tax benefit resulting from the re-measurement of our deferred tax assets and liabilities as of December 31, 2017 to reflect the reduced tax rate and a $19.3 million tax benefit resulting from adjustments to the valuation allowance on deferred tax assets.prior years.

157

Deferred Taxes

The ~~following table summarizes significant~~ components of deferred income tax assets and liabilities are summarized as ~~of December 31, 2018 and 2017~~follows (in millions):


								Successor		Predecessor
	2018			2017				December 31, 2021			December 31, 2020
Deferred tax assets:							Deferred tax assets:
Net operating loss carryforwards	$	148.4		$	187.1		Net operating loss carryforwards	$	2,293.5		$	2,272.2
Property and equipment							Property and equipment	1,361.6			—
Foreign tax credits	123.6			132.3			Foreign tax credits	105.7			171.2
Interest limitation carryforwards	40.2			—			Interest limitation carryforwards	74.8			221.2
Employee benefits, including share-based compensation							Employee benefits, including share-based compensation	51.2			81.6
Premiums on long-term debt	23.8			36.1			Premiums on long-term debt	9.7			115.7
Employee benefits, including share-based compensation	15.4			20.7
Deferred revenue	10.3			26.0

Other	14.5			12.8			Other	15.4			6.8
Total deferred tax assets	376.2			415.0			Total deferred tax assets	3,911.9			2,868.7
Valuation allowance	(316.0		)	(278.8		)	Valuation allowance	(3,829.0)			(2,787.7)
Net deferred tax assets	60.2			136.2			Net deferred tax assets	82.9			81.0
Deferred tax liabilities:							Deferred tax liabilities:
Property and equipment	(54.5		)	(51.5		)	Property and equipment	—			(40.9)
Deferred U.S. tax on foreign income	(31.5		)	(24.8		)
Deferred costs	(5.3		)	(9.1		)
Deferred transition tax	—			(13.7		)

Other	(3.7		)	(8.7		)	Other	(14.5)			(11.2)
Total deferred tax liabilities	(95.0		)	(107.8		)	Total deferred tax liabilities	(14.5)			(52.1)
Net deferred tax asset (liability)	$	(34.8	)	$	28.4
Net deferred tax asset							Net deferred tax asset	$	68.4		$	28.9

The realization of substantially all of our deferred tax assets is dependent upon generating sufficient taxable income during future periods in various jurisdictions in which we operate. Realization of certain of our deferred tax assets is not assured. We recognize a valuation allowance for deferred tax assets when it is more-likely-than-not that the benefit from the deferred tax asset will not be realized. The amount of deferred tax assets considered realizable could increase or decrease in the near-term if our estimates of future taxable income change.

As of December 31, ~~2018,~~2021 (Successor), we had gross deferred tax assets of ~~$123.6~~$2.3 billion relating to $10.0 billion of NOL carryforwards, $105.7 million ~~for~~of U.S. foreign tax credits (“FTCs”), ~~$148.4 million related to $784.2~~and $74.8 million of ~~net operating loss (“NOL”) carryforwards~~U.S. and ~~$40.2 million for U.S.~~Luxembourg interest limitation carryforwards, which can be used to reduce our income taxes payable in future years. ~~The FTCs expire between 2022 and 2028.~~ NOL carryforwards, which were generated in various jurisdictions worldwide, include ~~$449.8 million~~$9.1 billion that do not expire and ~~$334.4~~$807.5 million that will expire, if not utilized, between ~~2019~~2022 and ~~2037.~~2040. Deferred tax assets for NOL carryforwards as of December 31, 2021 (Successor) include $1.4 billion, $599.2 million, $76.4 million, and $56.4 million pertaining to NOL carryforwards in Luxembourg, the United States, Switzerland, and the U.K., respectively. The U.S. FTCs expire between 2022 and 2026. Interest limitation carryforwards generally do not expire. Additionally, as a result of our emergence from bankruptcy, the utilization of certain U.S. deferred tax assets including, but not limited to, NOL carryforwards, FTCs, and interest limitation carryforwards is limited to $0.5 million annually. We have recognized a $3.8 billion valuation allowance as of December 31, 2021 on deferred tax assets relating to those assets for which we are not more likely than not to realize due to the inability to generate sufficient taxable income in the period and/or of the character necessary to use the benefit of the deferred tax assets.

158

Certain components of deferred tax assets and liabilities as of December 31, 2021 (Successor) have changed significantly from December 31, 2020 (Predecessor) due to the impacts of fresh start accounting, Switzerland tax reform, and other tax attribute reductions resulting from restructurings due to and in connection with the emergence from bankruptcy. During the eight months ended December 31, 2021, we recognized a $9.8 million deferred tax benefit associated with changes in deferred tax asset valuation allowances. Given current industry conditions and recent historical losses, we do not ~~expire. Due to~~project reliable future income other than from existing drilling contracts and other known sources of future income. If industry conditions improve, which is generally evidenced by increased contract backlog and increased contract day rates, we may rely on projected taxable income from future drilling contracts for the ~~uncertainty~~recognition of ~~realization, we have a $271.8 million valuation allowance on FTC, NOL carryforwards and U.S. interest limitation carryforwards.~~deferred tax assets.

Effective Tax Rate

~~Ensco plc,~~Valaris Limited, the Successor Company and our parent company, is domiciled and resident in ~~the U.K.~~Bermuda. Our subsidiaries conduct operations and earn income in numerous countries and are subject to the laws of taxing jurisdictions within those countries. The income of our non-Bermuda subsidiaries is not subject to Bermuda taxation as there is not an income tax regime in Bermuda. Valaris plc, the Predecessor Company and our former parent company, was domiciled and resident in the U.K. The income of our non-U.K. subsidiaries iswas generally not subject to U.K. taxation.

Income tax rates ~~imposed~~and taxation systems in the ~~tax~~ jurisdictions in which our subsidiaries conduct operations vary ~~as does the tax base~~and our subsidiaries are frequently subjected to ~~which the rates are applied.~~minimum taxation regimes. In some ~~cases,~~jurisdictions, tax ~~rates may be applicable to~~liabilities are based on gross revenues, statutory ~~or negotiated~~ deemed profits or other ~~bases utilized under local tax laws,~~factors, rather than on net income, and our subsidiaries are frequently unable to ~~net income.~~realize tax benefits when they operate at a loss. Accordingly, during periods of declining profitability, our income tax expense may not decline proportionally with income, which could result in higher effective income tax rates. Furthermore, we will continue to incur income tax expense in periods in which we operate at a loss.

Our drilling rigs frequently move from one taxing jurisdiction to another to perform contract drilling services. In some instances, the movement of drilling rigs among taxing jurisdictions will involve the transfer of ownership of the drilling rigs among our subsidiaries. As a result of frequent changes in the taxing jurisdictions in which our drilling rigs are operated and/or owned, changes in profitability levels and changes in tax laws, our annual effective income tax rate may vary substantially from one reporting period to another. In periods of declining profitability, our income tax expense may not decline proportionally with income, which could result in higher effective income tax rates. Further, we may continue to incur income tax expense in periods in which we operate at a loss.

159

Our consolidated effective income tax rate ~~on continuing operations~~ for ~~each of~~ the ~~years in the three-year period~~eight months ended December 31, ~~2018,~~2021 (Successor), the four months ended April 30, 2021 (Predecessor), the year ended December 31, 2020 (Predecessor) and the year ended December 31, 2019 (Predecessor), respectively, differs from the Bermuda and U.K. statutory income tax ~~rate~~rates as follows:


	Successor		Predecessor
	Eight Months Ended December 31, 2021		Four Months Ended April 30, 2021		Year Ended December 31, 2020		Year Ended December 31, 2019
Bermuda (Successor)/ U.K. (Predecessor) statutory income tax rate	—	%	19.0	%	19.0	%	19.0	%
Asset impairments	—		(3.2)		(12.5)		(31.0)
Non-Bermuda (Successor) taxes	376.0		—		—		—
Non-U.K. (Predecessor) taxes	—		1.0		(2.8)		(280.9)
Resolution of prior year items	387.9		(0.4)		1.8		12.3
Switzerland Tax Reform	(188.3)		—		—		—
Valuation allowance	(119.5)		(1.8)		(1.5)		(145.1)
U.S. tax reform and U.S. CARES Act	—		—		2.4		(21.6)

Bargain purchase gain	—		—		—		189.7
Debt repurchases	—		—		—		48.7
Other	—		(15.0)		(1.3)		7.6
Effective income tax rate	456.1	%	(0.4)	%	5.1	%	(201.3)	%

2018 2017 2016
U.K. statutory income tax rate 19.0 % 19.2 % 20.0 %
Non-U.K. taxes (18.0 ) (40.4 ) (7.9 )
Valuation allowance (16.9 ) (18.0 ) 2.6
Debt repurchases (1.6 ) (2.8 ) (4.1 )
Asset impairments (1.4 ) (17.1 ) —
Bargain purchase gain (.2 ) 13.8
—
U.S. tax reform 2.2
(8.4 ) —
Tax restructuring transaction 1.7
—
—
Other (1.4 ) (2.0 ) .3
Effective income tax rate (16.6 )% (55.7 )% 10.9 %

Our ~~2018~~eight months ended December 31, 2021 (Successor) consolidated effective income tax rate includes $15.3 million associated with the impact of various discrete items, including $30.7 million income tax expense associated with changes in liabilities for unrecognized tax benefits and resolution of other prior period tax matters, offset by $15.4 million of tax benefit related to deferred taxes associated with Switzerland tax reform.

Our four months ended April 30, 2021 (Predecessor) consolidated effective income tax rate included $2.2 million associated with the impact of various discrete items, including $21.5 million of income tax expense associated with changes in liabilities for unrecognized tax benefits and resolution of other prior period tax matters, offset by $19.3 million of tax benefit related to fresh start accounting adjustments.

Our 2020 consolidated effective income tax rate includes a $322.4 million tax benefit associated with the impact of various discrete tax items, including ~~$46.0~~restructuring transactions, impairments of rigs and other assets, implementation of the U.S. CARES Act, changes in liabilities for unrecognized tax benefits associated with tax positions taken in prior years, rig sales, reorganization items and the resolution of other prior period tax matters.

Our 2019 consolidated effective income tax rate includes $2.3 million associated with the impact of various discrete tax items, including $28.3 million of tax expense associated with final rules related to U.S. tax reform, gains on repurchase of debt and settlement proceeds, partially offset by $26.0 million of tax benefit associated with the utilization of foreign tax credits subject to a valuation allowance, the transition tax on deemed repatriation of the deferred foreign income of our U.S. subsidiaries and a restructuring transaction, partially offset by $21.0 million of tax expense related to ~~recovery of certain costs associated with an ongoing legal matter, repurchase and redemption of senior notes,~~restructuring transactions, changes in liabilities for unrecognized tax benefits associated with tax positions taken in prior years and ~~rig sales.~~

Our 2017 consolidated effective income tax rate includes $32.2 million associated with the impact of various discrete tax items, including $16.5 million of tax expense associated with U.S. tax reform and $15.7 million of tax expense associated with the exchange offers and debt repurchases, rig sales, a restructuring transaction, settlement of a previously disclosed legal contingency, the effective settlement of a liability for unrecognized tax benefits associated with a tax position taken in prior years and other resolutions of prior year tax ~~matters.~~matters and rig sales.

~~Our 2016~~

160

Excluding the impact of the aforementioned discrete tax items, our consolidated effective income ~~tax rate includes~~rates for the ~~impact of various discrete tax items, including a $16.9 million tax expense resulting from net gains on~~eight months ended December 31, 2021 (Successor) and the repurchase of various debt during the year, the recognition of an $8.4 million net tax benefit relating to the sale of various rigs, a $5.5 million tax benefit resulting from a net reduction in the valuation allowance on U.S. foreign tax creditsfour months ended April 30, 2021 (Predecessor) were 387.7% and ~~a net $5.3 million tax benefit associated with liabilities for unrecognized tax benefits and other adjustments relating to prior years.~~

(12.9)%, respectively. Excluding the impact of the aforementioned discrete tax items, our consolidated effective income tax rates for the years ended December 31, ~~2018, 2017~~2020 and ~~2016~~2019 (Predecessor) were ~~(24.8)%, (96.0)~~(7.6)% and ~~20.3%~~(14.6)%, respectively. The changes in our consolidated effective income tax rate excluding discrete tax items during the three-year period result primarily from ~~U.S. tax reform and~~ changes in the relative components of our earnings from the various taxing jurisdictions in which our drilling rigs are operated and/or owned and differences in tax rates in such taxing jurisdictions.

As discussed in "Note 9 - Debt", on February 3, 2020, Rowan and RCI transferred substantially all their assets and liabilities to Valaris plc and Valaris plc became the obligor on the 4.875% 2022 Notes, 2042 Notes, 7.375% 2025 Notes, 4.75% 2024 Notes and 5.85% 2044 Notes. We recognized a tax benefit of $66.0 million during the year ended December 31, 2020 in connection with this transaction.

Unrecognized Tax Benefits

Our tax positions are evaluated for recognition using a more-likely-than-not threshold, and those tax positions requiring recognition are measured as the largest amount of tax benefit that is greater than 50% likely of being realized upon effective settlement with a taxing authority that has full knowledge of all relevant information.

As of December 31, ~~2018,~~2021 (Successor), we had ~~$143.0~~$234.3 million of unrecognized tax benefits, of which ~~$136.5~~$212.2 million was included in ~~other~~Other liabilities on our ~~consolidated balance sheet and the remaining $6.5~~Consolidated Balance Sheet, $21.1 million, which is associated with a tax ~~position~~positions taken in tax years with NOL carryforwards, was presented as a reduction of deferred tax ~~assets.~~ assets and $1.0 million was presented as a reduction of long-term income tax receivable.

As of December 31, ~~2017,~~2020 (Predecessor), we had ~~$147.6~~$237.7 million of unrecognized tax benefits, of which ~~$139.4~~$213.0 million was included in ~~other~~Other liabilities on our ~~consolidated balance sheet and the remaining~~ ~~$8.2~~Consolidated Balance Sheet, $20.7 million,, which is associated with a tax ~~position~~positions taken in tax years with NOL carryforwards, was presented as a reduction of deferred tax ~~assets.~~ assets and $4.0 million was presented as a reduction of long-term income tax receivable.

If recognized, ~~$127.4~~$208.9 million of the ~~$143.0~~$234.3 million unrecognized tax benefits as of December 31, ~~2018~~2021 (Successor) would impact our consolidated effective income tax rate. A reconciliation of the beginning and ending amount of unrecognized tax benefits for the ~~years~~eight months ended December 31, ~~2018~~2021 (Successor), the four months ended April 30, 2021 (Predecessor) and ~~2017~~ ~~is as follows~~the year ended December 31, 2020 (Predecessor), respectively (in millions):

2018 2017
Balance, beginning of year $ 147.6
$ 122.0
   Increases in unrecognized tax benefits as a result
      of tax positions taken during the current year
6.5
5.4
Impact of foreign currency exchange rates (5.0 ) 8.1
Lapse of applicable statutes of limitations (4.5 ) (.4 )
  Increase in unrecognized tax benefits as a result
      of tax positions taken during prior years
2.5
.7
Decreases in unrecognized tax benefits as a result
    of tax positions taken during prior years (3.8 ) (.2 )
Settlements with taxing authorities (.3 ) (10.2 )
  Increases in unrecognized tax benefits as a result of the Atwood Merger —
22.2
Balance, end of year $ 143.0
$ 147.6


	Successor		Predecessor
	Eight Months Ended December 31, 2021		Four Months Ended April 30, 2021		Year Ended December 31, 2020
Balance, beginning of period	$	235.4	$	237.7	$	296.7
Increase in unrecognized tax benefits as a result of tax positions taken during prior years	33.8		2.9		22.4
Lapse of applicable statutes of limitations	(20.2)		(0.2)		(13.2)
Impact of foreign currency exchange rates	(10.5)		(17.6)		9.0
Increases in unrecognized tax benefits as a result of tax positions taken during the current year	6.9		12.6		12.8
Settlements with taxing authorities	(6.6)		—		(0.7)
Decreases in unrecognized tax benefits as a result of tax positions taken during prior years	(4.5)		—		(89.3)
Balance, end of period	$	234.3	$	235.4	$	237.7

161

Accrued interest and penalties totaled ~~$40.5~~$108.0 million and ~~$38.6~~$73.1 million as of December 31, ~~2018~~2021 (Successor) and ~~2017~~2020 (Predecessor), respectively, and were included in ~~other~~Other liabilities on our ~~consolidated balance sheets.~~Consolidated Balance Sheets. We recognized a net expense of ~~$1.9~~$21.3 million, $13.5 million, $13.8 million and ~~$4.4~~$5.7 million ~~and a net benefit of~~ ~~$3.8 million~~ associated with interest and penalties during the eight months ended December 31, 2021 (Successor), the four months ended April 30, 2021 (Predecessor), the years ended December 31, ~~2018, 2017~~2020 and ~~2016~~2019 (Predecessor), respectively. Interest and penalties are included in ~~current~~Current income tax expense in our ~~consolidated statements~~Consolidated Statements of ~~operations.~~Operations.

~~Our 2014~~Three of our subsidiaries file U.S. tax returns and the tax returns of one or more of these subsidiaries is under exam for years 2009 to 2012 and for 2015, 2017 and subsequent ~~years remain subject~~years. None of these examinations are expected to ~~examination for U.S. federal tax returns.~~have an impact on the Company's consolidated results of operations and cash flows. Tax years as early as 2005 remain subject to examination in the other major tax jurisdictions in which we operated.

Statutes of limitations applicable to certain of our tax positions lapsed during ~~2018, 2017~~the eight months ended December 31, 2021 (Successor), the four months ended April 30, 2021 (Predecessor), the years ended December 31, 2020 and ~~2016~~2019 (Predecessor), resulting in net income tax benefits, inclusive of interest and penalties, of ~~$5.3~~$17.9 million,, ~~$1.1~~ $0.2 million, $4.3 million and ~~$600,000~~,$5.3 million, respectively.

Absent the commencement of examinations by tax authorities, statutes of limitations applicable to certain of our tax positions will lapse during ~~2019.~~2022. Therefore, it is reasonably possible that our unrecognized tax benefits will decline during the next 12 months by ~~$500,000,~~$4.0 million, inclusive of ~~$300,000~~$1.4 million of accrued interest and penalties, all of which would impact our consolidated effective income tax rate if recognized.

Tax Assessments

~~Intercompany Transfer~~Predecessor

During 2019, the Luxembourg tax authorities issued aggregate tax assessments totaling approximately €142.0 million (approximately $161.5 million converted using the current period-end exchange rates) related to tax years 2014, 2015 and 2016 for several of ~~Drilling Rigs~~

~~In October 2016,~~Rowan's Luxembourg subsidiaries. We recorded a liability for uncertain tax positions of €93.0 million (approximately $105.7 million converted using the ~~FASB issued Accounting Standards Update 2016-16, Income Taxes (Topic 740): Intra-Entity Transfers~~current period-end exchange rates) in purchase accounting related to these assessments. During the first quarter of ~~Assets Other Than Inventory (“Update 2016-16”)~~2020, in connection with the administrative appeals process, the tax authority withdrew assessments of €142.0 million (approximately $161.5 million converted using the current period-end exchange rates), ~~which requires entities~~accepting the associated tax returns as previously filed. Accordingly, we de-recognized previously accrued liabilities for uncertain tax positions and net wealth taxes of €79.0 million (approximately $89.8 million converted using the current period-end exchange rates) and €2.0 million (approximately $2.3 million converted using the current period-end exchange rates), respectively. The de-recognition of amounts related to ~~recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transaction occurs~~these assessments was recognized as ~~opposed to deferring tax consequences and amortizing them into future periods. We adopted Update 2016-16 on~~ a modified retrospective basis effective January 1, 2017. As a result of modified retrospective application, we reduced prepaid taxes on intercompany transfers of property and related deferred tax liabilities resulting in the recognition of a cumulative-effect reduction in retained earnings of $14.1 million on our consolidated balance sheet as of January 1, 2017. We did not recognize any income tax benefit ~~or expense from the intercompany transfer of drilling rigs~~ during the ~~years~~three-month period ended March 31, 2020 and is included in Changes in operating assets and liabilities on the Consolidated Statements of Cash Flows for the year ended December 31, ~~2018~~2020 (Predecessor). On December 31, 2021, we de-recognized the remaining liability for uncertain tax position balance of €14.0 million (approximately $15.9 million converted using the current period-end exchange rates) upon the lapse of the applicable statute of limitations.

During 2019, the Australian tax authorities issued aggregate tax assessments totaling approximately A$101 million (approximately $73.4 million converted at current period-end exchange rates) plus interest related to the examination of certain of our tax returns for the years 2011 through 2016. During the third quarter of 2019, we made a A$42 million payment (approximately $29 million at then-current exchange rates) to the Australian tax authorities to litigate the assessment. We have an $18.0 million liability for unrecognized tax benefits relating to these assessments as of December 31, 2021 (Successor). We believe our tax returns are materially correct as filed, and ~~2017, respectively.~~we are vigorously contesting these assessments. Although the outcome of such assessments and related administrative proceedings cannot be predicted with certainty, we do not expect these matters to have a material adverse effect on our financial position, operating results and cash flows.

162

Undistributed Earnings

Dividend income received by ~~Ensco plc~~Valaris Limited from its subsidiaries is exempt from ~~U.K.~~Bermuda taxation. We do not provide deferred taxes on undistributed earnings of certain subsidiaries because our policy and intention is to reinvest such earnings indefinitely. Each of the subsidiaries for which we maintain such policy has sufficient net assets, liquidity, contract backlog and/or other financial resources available to meet operational and capital investment requirements, which allows us to continue to maintain our policy of reinvesting the undistributed earnings indefinitely.

As of December 31, ~~2018,~~2021 (Successor), the aggregate undistributed earnings of the subsidiaries for which we maintain a policy and intention to reinvest earnings indefinitely totaled ~~$386.7~~$279.5 million. Should we make a distribution from these subsidiaries in the form of dividends or otherwise, we would be subject to additional income taxes. The unrecognized deferred tax liability related to these undistributed earnings was not practicable to estimate as of December 31, ~~2018.~~2021 (Successor).

~~11. DISCONTINUED OPERATIONS~~

We continue to focus on our fleet management strategy in light of the new composition of our rig fleet and will continue to review our fleet composition as we position Ensco for the future. As part of this strategy, we may act opportunistically from time to time to monetize assets to enhance shareholder value and improve our liquidity profile, in addition to selling or disposing of older, lower-specification or non-core rigs.

Prior to 2015, individual rig disposals were classified as discontinued operations once the rigs met the criteria to be classified as held-for-sale. The operating results of the rigs through the date the rig was sold as well as the gain or loss on sale were included in results from discontinued operations, net, in our consolidated statement of operations. Net proceeds from the sales of the rigs were included in investing activities of discontinued operations in our consolidated statement of cash flows in the period in which the proceeds were received.

~~During 2015, we adopted the Financial Accounting Standards Board’s Accounting Standards Update 2014-08,~~ ~~Presentation of Financial Statements~~ (~~Topic 205~~) ~~and Property, Plant, and Equipment~~ (~~Topic 360~~): ~~Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity~~ ("~~Update 2014-08~~"). Under the new guidance, only disposals representing a strategic shift in operations should be presented as discontinued operations. As a result, individual assets that are classified as held-for-sale beginning in 2015 are not reported as discontinued operations and their operating results and gain or loss on sale of these rigs are included in continuing operations in our consolidated statements of operations. Rigs that were classified as held-for-sale prior to 2015 continue to be reported as discontinued operations.

~~The following rig sales were included in discontinued operations during the three-year period ended December 31, 2018 (in millions):~~

Rig Date of Sale
Segment⁽¹⁾
Net Proceeds
Net Book Value⁽²⁾
Pre-tax Gain (Loss)
ENSCO 7500 April 2018 Floaters $ 2.6
$ 1.5
$ 1.1
ENSCO 90 June 2017 Jackups .3
.3
—
ENSCO DS-2 May 2016 Floaters 5.0
4.0
1.0
ENSCO 58 April 2016 Jackups .7
.3
.4
ENSCO 6000 April 2016 Floaters .6

.8
(.2 )
$ 9.2
$ 6.9
$ 2.3

⁽¹⁾ The rigs' operating results were reclassified to discontinued operations in our consolidated statements of operations for each of the years in the three-year period ended December 31, 2018 and were previously included within the specified operating segment.

⁽²⁾~~Includes the rig's net book value as well as inventory and other assets on the date of the sale.~~

~~The following table summarizes income (loss) from discontinued operations for each of the years in the three-year period ended December 31, 2018 (in millions):~~

2018 2017 2016
Revenues $ —
$ —
$ —
Operating expenses 2.0
1.5
3.1
Operating loss (2.0 ) (1.5 ) (3.1 )
Income tax expense (benefit) 7.1
(2.1 ) (10.1 )
Gain on disposal of discontinued operations, net 1.0
.4
1.1
Income (loss) from discontinued operations $ (8.1 ) $ 1.0
$ 8.1

~~Income tax benefit from discontinued operations for the years ended December 31, 2018~~, ~~2017 and 2016 included $6.9 million of discrete tax expense and $2.1 million and $10.2 million of discrete tax benefits, respectively.~~

~~Debt and interest expense are not allocated to our discontinued operations.~~

~~12.~~15. COMMITMENTS AND CONTINGENCIES

~~Leases~~Prior to our chapter 11 filing, we had contractual commitments for the construction of VALARIS DS-13 and VALARIS DS-14. On February 26, 2021, we entered into amended agreements with the shipyard that became effective upon our emergence from bankruptcy. The amendments provide for, among other things, an option construct whereby the Company has the right, but not the obligation, to take delivery of either or both rigs on or before December 31, 2023. Under the amended agreements, the purchase price for the rigs are estimated to be approximately $119.1 million for the VALARIS DS-13 and $218.3 million for the VALARIS DS-14, assuming a December 31, 2023 delivery date. Delivery can be requested any time prior to December 31, 2023 with a downward purchase price adjustment based on predetermined terms. If the Company elects not to purchase the rigs, the Company has no further obligations to the shipyard. The amended agreements removed any parent company guarantee.

~~We are obligated under leases for certain~~Indonesian Well-Control Event

In July 2019, a well being drilled offshore Indonesia by one of our ~~offices~~jackup rigs experienced a well-control event requiring the cessation of drilling activities. In February 2020, the rig resumed operations. Indonesian authorities initiated an investigation into the event and ~~equipment. Rental expense relating to operating leases was $40.1 million, $37.0 million~~have contacted the customer, us and ~~$39.7 million during~~other parties involved in drilling the years ended December 31, 2018, 2017 and 2016, respectively. Future minimum rental payments under our noncancellable operating lease obligations are as follows: $32.3 million during 2019; $18.7 million during 2020; $11.9 million during 2021; $9.2 million during 2022; $8.9 million during 2023 and $15.2 million thereafter.

~~Capital Commitments~~

~~The following table summarizes~~well for additional information. We cooperated with the ~~cumulative amount~~Indonesian authorities. We cannot predict the scope or ultimate outcome of ~~contractual payments made as of December 31, 2018 for our rigs under construction and estimated timing of our remaining contractual payments (in millions):~~

Cumulative Paid⁽¹⁾
2019 2020 Thereafter
Total⁽²⁾
ENSCO 123⁽³⁾
$ 276.4
$ 9.0
$ —
$ —
$ 285.4
ENSCO DS-14⁽⁴⁾
15.0
—
165.0
—
180.0
ENSCO DS-13⁽⁴⁾
—
83.9
—
—
83.9
$ 291.4
$ 92.9
$ 165.0
$ —
$ 549.3


⁽¹⁾	Cumulative paid represents the aggregate amount of contractual payments made from commencement of the construction agreement through December 31, 2018. Contractual payments made by Atwood prior to the Atwood Merger for ENSCO DS-13 and ENSCO DS-14 are excluded.


⁽²⁾	Total commitments are based on fixed-price shipyard construction contracts, exclusive of our internal costs associated with project management, commissioning and systems integration testing. Total commitments also exclude holding costs and interest.


⁽³⁾	In January 2018, we made a milestone payment of $207.4 million. The remaining unpaid balance of $9.0 million is due upon delivery. The $207.4 million milestone payment was invoiced and included in accounts payable - trade as of December 31, 2017 on our consolidated balance sheet.

⁽⁴⁾

~~The actual timing of these expenditures may vary based on~~this investigation. If the ~~completion of various construction milestones, which are, to a large extent, beyond our control.~~

~~DSA Dispute~~

On January 4, 2016, Petrobras sent a notice to us declaring the drilling services agreement with Petrobras (the "DSA") for ENSCO DS-5, a drillship ordered from Samsung Heavy Industries, a shipyard in South Korea ("SHI"), void effective immediately, reserving its rights and stating its intention to seek any restitution to which it may be entitled. The previously disclosed arbitral hearing on liability related to the matter was held in March 2018. Prior to the arbitration tribunal issuing its decision,Indonesian authorities determine that we ~~and Petrobras agreed in August 2018 to a settlement of all claims relating to the DSA. No payments were made by either party~~violated local laws in connection with this matter, we could be subject to penalties including environmental or other liabilities, which may have a material adverse impact on us.

ARO Funding Obligations

~~In November 2016, we initiated separate arbitration proceedings~~second rig is expected either late in the ~~U.K. against SHI for the losses incurred in connection with the foregoing Petrobras arbitration and certain other losses relating to the DSA. SHI subsequently filed a statement~~fourth quarter of ~~defense disputing our claim. In January 2018, the arbitration tribunal for the SHI matter issued an~~

award on liability fully in our favor. In August 2018, the tribunal awarded us approximately $2.8 million in costs and legal fees incurred to date, plus interest, which was collected during the fourth quarter.

~~The January 2018 arbitration award provides that SHI is liable to us for $10 million~~2022 or ~~damages that we can prove. We have submitted to the tribunal our claim for damages. The arbitral hearing on damages owed to us by SHI is scheduled to take place~~ in the first quarter of ~~2019. We are~~2023. ARO is expected to place orders for two additional newbuild jackups in 2022. The joint venture partners intend for the newbuild jackup rigs to be financed out of available cash from ARO's operations and/or funds available from third-party debt financing. ARO paid a 25% down payment from cash on hand for each of the newbuilds ordered in January 2020 and is actively exploring financing options for remaining payments due upon delivery. In the event ARO has insufficient cash from operations or is unable to ~~estimate~~obtain third-party financing, each partner may periodically be required to make additional capital contributions to ARO, up to a maximum aggregate contribution of $1.25 billion from each partner to fund the ~~ultimate outcome~~newbuild program. Each partner's commitment shall be reduced by the actual cost of ~~recovery~~each newbuild rig, on a proportionate basis.

163

The joint venture partners agreed that Saudi Aramco, as a customer, will provide drilling contracts to ARO in connection with the acquisition of the newbuild rigs. The initial contracts provided by Saudi Aramco for ~~damages at this time.~~each of the newbuild rigs will be for an eight-year term. The day rate for the initial contracts for each newbuild rig will be determined using a pricing mechanism that targets a six-year payback period for construction costs on an EBITDA basis. The initial eight-year contracts will be followed by a minimum of another eight years of term, re-priced in three-year intervals based on a market pricing mechanism.

Other Matters

In addition to the foregoing, we are named defendants or parties in certain other lawsuits, claims or proceedings incidental to our business and are involved from time to time as parties to governmental investigations or proceedings, including matters related to taxation, arising in the ordinary course of business. Although the outcome of such lawsuits or other proceedings cannot be predicted with certainty and the amount of any liability that could arise with respect to such lawsuits or other proceedings cannot be predicted accurately, we do not expect these matters to have a material adverse effect on our financial position, operating results and cash flows.

In the ordinary course of business with customers and others, we have entered into letters of credit to guarantee our performance as it relates to our drilling contracts, contract bidding, customs duties, tax appeals and other obligations in various jurisdictions. Letters of credit outstanding as of December 31, ~~2018~~2021 (Successor) totaled ~~$126.3~~$36.5 million and are issued under facilities provided by various banks and other financial institutions. Obligations under these letters of credit ~~and surety bonds~~ are not normally called, as we typically comply with the underlying performance requirement. As of December 31, ~~2018,~~2021 (Successor), we had ~~not been required to make~~ collateral deposits in the amount of $31.1 million with respect to these agreements.

164

~~13.~~16. LEASES

We have operating leases for office space, facilities, equipment, employee housing and certain rig berthing facilities. For all asset classes, except office space, we account for the lease component and the non-lease component as a single lease component. Our leases have remaining lease terms of less than one year to nine years, some of which include options to extend.

We evaluate the carrying value of our right-of-use assets on a periodic basis to identify events or changes in circumstances, such as lease abandonment, that indicate that the carrying value of such right-of-use assets may be impaired.

The components of lease expense are as follows (in millions):


	Successor		Predecessor
	Eight Months Ended December 31, 2021		Four Months Ended April 30, 2021		Year Ended December 31, 2020		Year Ended December 31, 2019
Long-term operating lease cost	$	12.9	$	9.1	$	23.3	$	29.5
Short-term operating lease cost	15.3		7.0		19.2		12.2
Sublease income	(0.3)		(0.1)		(2.3)		(2.4)
Total operating lease cost	$	27.9	$	16.0	$	40.2	$	39.3

Supplemental balance sheet information related to our operating leases is as follows (in millions, except lease term and discount rate):


	Successor			Predecessor
	December 31, 2021			December 31, 2020
Operating lease right-of-use assets	$	20.5		$	35.8

Current lease liability	$	10.0		$	15.7
Long-term lease liability	12.5			21.6
Total operating lease liabilities	$	22.5		$	37.3

Weighted-average remaining lease term (in years)	4.8			4.3

Weighted-average discount rate (1)	7.27		%	8.24		%

(1)Represents our estimated incremental borrowing cost on a secured basis for similar terms as the underlying leases.

During the eight months ended December 31, 2021 (Successor) and during the four months ended April 30, 2021 (Predecessor), cash paid for amounts included in the measurement of our operating lease liabilities were $11.7 million and $7.1 million, respectively. For the years ended December 31, 2020 and 2019 (Predecessor), cash paid for amounts included in the measurement of our operating lease liabilities were $23.5 million and $29.9 million, respectively.

165

Maturities of lease liabilities as of December 31, 2021 (Successor) were as follows (in millions):



2022	$	11.3
2023	3.1
2024	2.2
2025	2.0
2026	2.0
Thereafter	6.8
Total lease payments	$	27.4
Less imputed interest	(4.9)
Total	$	22.5

Predecessor

On October 28, 2020, the Bankruptcy Court approved the rejection of certain unexpired office leases and related subleases. The various lease rejections were effective as of September 30, 2020 and October 31, 2020. We recorded an estimated allowed claim of $4.4 million and recognized an expense in Reorganization items, net on our Consolidated Statements of Operations for the year ended December 31, 2020 (Predecessor). Also, during the year ended December 31, 2020 (Predecessor), in connection with the office lease rejections, we reduced our right-of-use asset by a total of $10.5 million and lease liability by a total of $20.4 million and recognized a net gain in Reorganization items of $9.8 million which includes the write off of associated leasehold improvements. Additionally, in connection with the lease rejections, during the year ended December 31, 2020 (Predecessor), we amended the terms of the lease for our corporate headquarters in Houston, Texas. The amendment reduced the associated right-of-use asset by $6.4 million and lease liability by $10.4 million and we recognized a net gain in Reorganization items of $1.7 million which includes the write-off of associated leasehold improvements during the year ended December 31, 2020 (Predecessor).

During the year ended December 31, 2019 (Predecessor), we recorded lease impairments of $5.6 million related to the impairment of the right-of-use assets associated with an office space and a leased yard facility that were abandoned due to the consolidation of certain corporate offices and leased facilities.

17. SEGMENT INFORMATION

Our business consists of ~~three~~4 operating segments: (1) Floaters, which includes our drillships and semisubmersible rigs, (2) Jackups, (3) ARO and ~~(3)~~(4) Other, which consists of management services on rigs owned by ~~third-parties. Our two~~third-parties and the activities associated with our arrangements with ARO under the Lease Agreements, the Secondment Agreement and the Transition Services Agreement. Floaters, Jackups and ARO are also reportable segments.

Upon emergence, we ceased allocation of our onshore support costs included within Contract drilling expenses to our operating segments ~~Floaters~~for purposes of measuring segment operating income (loss) and ~~Jackups, provide one service, contract drilling.~~

~~Segment information for each of~~as such, those costs are included in “Reconciling Items”. We have adjusted the ~~years in the three-year~~historical periods to conform with current period ~~ended~~ ~~December 31, 2018~~ ~~is presented below (in millions)~~presentation.Further, General and administrative expense and ~~depreciation~~Depreciation expense incurred by our corporate office are not allocated to our operating segments for purposes of measuring segment operating income (loss) and ~~were~~are included in "Reconciling Items." Substantially all of the expenses incurred associated with our Transition Services Agreement are included in General and administrative under "Reconciling Items" in the table set forth below. We measure segment assets as ~~property~~Property and ~~equipment.~~equipment, net.

166

The full operating results included below for ARO are not included within our consolidated results and thus deducted under "Reconciling Items" and replaced with our equity in earnings of ARO. See "Note 6 - Equity Method Investment in ARO" for additional information on ARO and related arrangements.

Segment information for the eight months ended December 31, 2021 (Successor), the four months ended April 30, 2021 (Predecessor), the years ended December 31, 2020 and 2019 (Predecessor), respectively are presented below (in millions).

Eight Months Ended December 31, 2021 (Successor)


	Floaters		Jackups		ARO		Other		Reconciling Items		Consolidated Total
Revenues	$	254.5	$	487.1	$	307.1	$	93.4	$	(307.1)	$	835.0
Operating expenses
Contract drilling (exclusive of depreciation)	250.7		365.2		246.2		38.9		(172.3)		728.7

Depreciation	31.0		32.0		44.2		2.8		(43.9)		66.1
General and administrative	—		—		13.6		—		44.6		58.2

Equity in earnings of ARO	—		—		—		—		6.1		6.1
Operating income (loss)	$	(27.2)	$	89.9	$	3.1	$	51.7	$	(129.4)	$	(11.9)
Property and equipment, net	$	408.2	$	401.9	$	730.6	$	46.0	$	(695.8)	$	890.9
Capital expenditures	$	26.0	$	23.7	$	41.8	$	—	$	(41.3)	$	50.2

Four Months Ended April 30, 2021 (Predecessor)


	Floaters		Jackups		ARO		Other		Reconciling Items		Consolidated Total
Revenues	$	115.7	$	232.4	$	163.5	$	49.3	$	(163.5)	$	397.4
Operating expenses
Contract drilling (exclusive of depreciation)	106.5		175.0		116.1		19.9		(73.7)		343.8
Loss on impairment	756.5		—		—		—		—		756.5
Depreciation	72.1		69.7		21.0		14.8		(18.0)		159.6
General and administrative	—		—		4.2		—		26.5		30.7

Equity in earnings of ARO	—		—		—		—		3.1		3.1
Operating income (loss)	$	(819.4)	$	(12.3)	$	22.2	$	14.6	$	(95.2)	$	(890.1)
Property and equipment, net	$	419.3	$	401.4	$	730.7	$	50.5	$	(692.8)	$	909.1
Capital expenditures	$	3.3	$	5.4	$	14.9	$	—	$	(14.9)	$	8.7

167

Year Ended December 31, ~~2018~~2020 (Predecessor)


	Floaters		Jackups		ARO		Other		Reconciling Items		Consolidated Total
Revenues	$	505.8	$	765.3	$	549.4	$	156.1	$	(549.4)	$	1,427.2
Operating expenses
Contract drilling (exclusive of depreciation)	566.1		659.5		388.2		82.8		(226.2)		1,470.4
Loss on impairment	3,386.2		254.3		—		5.7		—		3,646.2
Depreciation	262.8		217.2		54.8		44.8		(38.8)		540.8
General and administrative	—		—		24.2		—		190.4		214.6
Other operating income	118.1		—		—		—		—		118.1
Equity in losses of ARO	—		—		—		—		(7.8)		(7.8)
Operating income (loss)	$	(3,591.2)	$	(365.7)	$	82.2	$	22.8	$	(482.6)	$	(4,334.5)
Property and equipment, net	$	6,413.4	$	3,912.6	$	736.2	$	577.9	$	(679.6)	$	10,960.5
Capital expenditures	$	25.1	$	58.9	$	136.1	$	—	$	(126.3)	$	93.8

Floaters Jackups Other Operating Segments Total Reconciling Items Consolidated Total
Revenues $ 1,013.5
$ 630.9
$ 61.0
$ 1,705.4
$ —
$ 1,705.4
Operating expenses
  Contract drilling
  (exclusive of depreciation)
737.4
526.5
55.5
1,319.4
—
1,319.4
  Loss on impairment —
40.3
—
40.3
—
40.3
  Depreciation 311.8
153.3
—
465.1
13.8
478.9
  General and administrative —
—
—
—
102.7
102.7
Operating income (loss) $ (35.7 ) $ (89.2 ) $ 5.5
$ (119.4 ) $ (116.5 ) $ (235.9 )
Property and equipment, net $ 9,465.6
$ 3,114.1
$ —
$ 12,579.7
$ 36.5
$ 12,616.2
Capital expenditures $ 105.5
$ 317.7
$ —
$ 423.2
$ 3.5
$ 426.7

Year Ended December 31, ~~2017~~2019 (Predecessor)

Floaters Jackups Other Operating Segments Total Reconciling Items Consolidated Total
Revenues $ 1,143.5
$ 640.3
$ 59.2
$ 1,843.0
$ —
$ 1,843.0
Operating expenses
  Contract drilling
  (exclusive of depreciation)
624.2
512.1
53.2
1,189.5
—
1,189.5
  Loss on impairment 174.7
8.2
—
182.9
—
182.9
  Depreciation 297.4
131.5
—
428.9
15.9
444.8
  General and administrative —
—
—
—
157.8
157.8
Operating income (loss) $ 47.2
$ (11.5 ) $ 6.0
$ 41.7
$ (173.7 ) $ (132.0 )
Property and equipment, net $ 9,650.9
$ 3,177.6
$ —
$ 12,828.5
$ 45.2
$ 12,873.7
Capital expenditures $ 470.3
$ 62.1
$ —
$ 532.4
$ 4.3
$ 536.7

~~Year Ended December 31, 2016~~


	Floaters		Jackups		Other		Operating Segments Total		Reconciling Items			Consolidated Total			Floaters		Jackups		ARO		Other		Reconciling Items		Consolidated Total
Revenues	$	1,771.1	$	929.5	$	75.8	$	2,776.4	$	—		$	2,776.4	Revenues	$	1,014.4	$	834.6	$	410.5	$	204.2	$	(410.5)	$	2,053.2
Operating expenses														Operating expenses
Contract drilling (exclusive of depreciation)	725.0		516.8		59.2		1,301.0		—			1,301.0		Contract drilling (exclusive of depreciation)	785.0		711.3		280.2		111.0		(79.7)		1,807.8
Loss on impairment														Loss on impairment	88.2		10.2		—		—		5.6		104.0
Depreciation	304.1		123.7		—		427.8		17.5			445.3		Depreciation	362.3		203.3		40.3		25.5		(21.7)		609.7
General and administrative	—		—		—		—		100.8			100.8		General and administrative	—		—		27.1		—		161.8		188.9
Operating income	$	742.0	$	289.0	$	16.6	$	1,047.6	$	(118.3	)	$	929.3
Equity in losses of ARO														Equity in losses of ARO	—		—		—		—		(12.6)		(12.6)
Operating income (loss)														Operating income (loss)	$	(221.1)	$	(90.2)	$	62.9	$	67.7	$	(489.1)	$	(669.8)
Property and equipment, net	$	8,300.4	$	2,561.0	$	—	$	10,861.4	$	57.9		$	10,919.3	Property and equipment, net	$	10,073.1	$	4,322.7	$	650.7	$	620.9	$	(570.5)	$	15,096.9
Capital expenditures	$	110.3	$	206.2	$	—	$	316.5	$	5.7		$	322.2	Capital expenditures	$	31.4	$	184.6	$	27.5	$	—	$	(16.5)	$	227.0



	2019		2020		2021		2022 and Beyond		Total
Floaters	$	716.5	$	225.0	$	—	$	—	$	941.5
Jackups	503.4		272.0		191.8		103.8		1,071.0
Other	55.8		55.9		55.7		2.5		169.9
Total	$	1,275.7	$	552.9	$	247.5	$	106.3	$	2,182.4



Issuer Repurchases of Equity Securities
Period	Total Number of Securities Repurchased⁽¹⁾	Average Price Paid per Security		Total Number of Securities Repurchased as Part of Publicly Announced Plans or Programs⁽²⁾	Approximate Dollar Value of Securities that May Yet Be Repurchased Under Plans or Programs
October 1 - October 31	2,602	$	8.50	—	$	500,000,000
November 1 - November 30	4,858	$	6.53	—	$	500,000,000
December 1 - December 31	1,914	$	5.11	—	$	500,000,000
Total	9,374	$	6.79	—


	2021		2020
Floaters (1)	$	1,665.3	$	163.7
Jackups	643.0		737.6
Other(2)	135.6		140.1
Total	$	2,443.9	$	1,041.4
ARO	$	1,501.1	$	347.5


	2022		2023		2024 and Beyond		Total
Floaters	$	506.3	$	454.2	$	704.8	$	1,665.3
Jackups	469.2		153.3		20.5		643.0
Other	46.0		45.0		44.6		135.6
Total	$	1,021.5	$	652.5	$	769.9	$	2,443.9
ARO	$	375.2	$	394.8	$	731.1	$	1,501.1


	2021		2020		2019
Rig Utilization(1)
Floaters	27%		26%		47%
Jackups	54%		54%		66%
Other(2)	100%		98%		100%
Total Valaris	54%		52%		63%
ARO	87%		89%		93%
Average Day Rates(3)
Floaters	$	192,984	$	192,057	$	218,837
Jackups	95,304		86,266		78,133
Other(2)	31,301		37,580		49,236
Total Valaris	$	88,847	$	87,547	$	108,313
ARO	$	73,799	$	82,624	$	71,170



	UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ~~FORM 10-K~~



ý☑			ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 ~~For the fiscal year ended December 31, 2018~~



o☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to

Valaris Limited

	~~Ensco plc~~ (Exact name of registrant as specified in its charter)



									~~Registrant's telephone number, including area code:~~ ~~+44 (0) 20 7659 4660~~



Item 5.			Market for Registrant's Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities


⁽¹⁾	During the quarter ended December 31, 2018, equity securities were repurchased from employees and non-employee directors by an affiliated employee benefit trust in connection with the settlement of income tax withholding obligations arising from the vesting of share awards. Such securities remain available for re-issuance in connection with employee share awards.



	Fiscal Year Ended December 31,
	2013	2014	2015	2016	2017	2018
Ensco plc	100.0	56.1	29.7	18.8	11.5	7.0
S&P MidCap 400	100.0	109.8	107.4	129.7	150.7	134.0
Peer Group	100.0	45.2	26.5	25.6	18.5	10.6


⁽¹⁾	~~See Note 11 to our consolidated financial statements included in "Item 8. Financial Statements and Supplementary Data" for information on discontinued operations.~~


											Successor		Predecessor		Combined (Non-GAAP)		Predecessor
	2018			2017			2016				Eight Months Ended December 31, 2021		Four Months Ended April 30, 2021		Year Ended December 31, 2021		Year Ended December 31, 2020		Year Ended December 31, 2019
Revenues	$	1,705.4		$	1,843.0		$	2,776.4		Revenues	$	835.0	$	397.4	$	1,232.4	$	1,427.2	$	2,053.2
Operating expenses										Operating expenses
Contract drilling (exclusive of depreciation)	1,319.4			1,189.5			1,301.0			Contract drilling (exclusive of depreciation)	728.7		343.8		1,072.5		1,470.4		1,807.8
Loss on impairment	40.3			182.9			—			Loss on impairment	—		756.5		756.5		3,646.2		104.0
Depreciation	478.9			444.8			445.3			Depreciation	66.1		159.6		225.7		540.8		609.7
General and administrative	102.7			157.8			100.8			General and administrative	58.2		30.7		88.9		214.6		188.9
Operating income (loss)	(235.9		)	(132.0		)	929.3
Total operating expenses										Total operating expenses	853.0		1,290.6		2,143.6		5,872.0		2,710.4
Other operating income										Other operating income	—		—		—		118.1		—
Equity in earnings (losses) of ARO										Equity in earnings (losses) of ARO	6.1		3.1		9.2		(7.8)		(12.6)
Operating loss										Operating loss	(11.9)		(890.1)		(902.0)		(4,334.5)		(669.8)
Other income (expense), net	(303.0		)	(64.0		)	68.2			Other income (expense), net	20.1		(3,557.5)		(3,537.4)		(782.5)		606.0
Provision for income taxes	89.6			109.2			108.5
Income (loss) from continuing operations	(628.5		)	(305.2		)	889.0
Income (loss) from discontinued operations, net	(8.1		)	1.0			8.1
Net income (loss)	(636.6		)	(304.2		)	897.1
Provision (benefit) for income taxes										Provision (benefit) for income taxes	37.4		16.2		53.6		(259.4)		128.4

Net loss										Net loss	(29.2)		(4,463.8)		(4,493.0)		(4,857.6)		(192.2)
Net (income) loss attributable to noncontrolling interests	(3.1		)	.5			(6.9		)	Net (income) loss attributable to noncontrolling interests	(3.8)		(3.2)		(7.0)		2.1		(5.8)
Net income (loss) attributable to Ensco	$	(639.7	)	$	(303.7	)	$	890.2
Net loss attributable to Valaris										Net loss attributable to Valaris	$	(33.0)	$	(4,467.0)	$	(4,500.0)	$	(4,855.5)	$	(198.0)



			~~Commission File Number 1-8097~~


⁽¹⁾	~~During 2018, we sold ENSCO 5005 and ENSCO 6001. During 2017, we added ENSCO DS-11, ENSCO DS-12, ENSCO DPS-1 and ENSCO MS-1 from the Atwood Merger.~~


⁽²⁾	~~During 2017, we accepted delivery of ENSCO DS-10.~~


⁽³⁾	During 2018, we sold ENSCO 80, ENSCO 81 and ENSCO 82. During 2017, we added ENSCO 111, ENSCO 112, ENSCO 113, ENSCO 114 and ENSCO 115 from the Atwood Merger and sold ENSCO 86, ENSCO 99, ENSCO 52 and ENSCO 56.


⁽⁴⁾	~~During 2017, we added ENSCO DS-13 and ENSCO DS-14 from the Atwood Merger, both of which are under construction.~~


Rig	Date of Sale	Segment(1)	Net Proceeds		Net Book Value(2)		Pre-tax Gain/(Loss)
Successor
VALARIS 37	November 2021	Jackups	$	4.2	$	0.3	$	3.9
VALARIS 22	October 2021	Jackups	4.0		0.3		3.7
VALARIS 142	October 2021	Jackups	15.0		2.0		13.0
VALARIS 100	August 2021	Jackups	1.1		1.0		0.1
			$	24.3	$	3.6	$	20.7

Predecessor
VALARIS 101	April 2021	Jackups	$	26.4	$	21.1	$	5.3
VALARIS 8504	October 2020	Floater	4.7		4.0		0.7
VALARIS 88	October 2020	Jackups	1.4		0.3		1.1
VALARIS 84	October 2020	Jackups	1.2		0.3		0.9
VALARIS 105	September 2020	Jackups	2.1		0.8		1.3
VALARIS DS-6	August 2020	Floaters	5.7		6.1		(0.4)
VALARIS 87	August 2020	Jackups	0.3		0.2		0.1
VALARIS 8500	July 2020	Floaters	4.0		0.7		3.3
VALARIS 8501	July 2020	Floaters	4.0		0.7		3.3
VALARIS 8502	July 2020	Floaters	1.8		0.7		1.1
VALARIS DS-3	July 2020	Floaters	6.1		6.1		—
VALARIS DS-5	July 2020	Floaters	6.1		6.1		—
VALARIS 71	June 2020	Jackups	0.2		0.8		(0.6)
VALARIS 70	June 2020	Jackups	0.6		1.0		(0.4)
VALARIS 5004	April 2020	Floaters	1.9		2.0		(0.1)
VALARIS 68	January 2020	Jackups	0.3		0.3		—
VALARIS 6002	January 2020	Floaters	2.1		0.9		1.2
VALARIS 96	December 2019	Jackups	1.9		0.3		1.6
VALARIS 5006	November 2019	Floaters	7.0		6.0		1.0
VALARIS 42	October 2019	Jackups	2.9		2.5		0.4
Gorilla IV	May 2019	Jackups	2.5		2.5		—
ENSCO 97	April 2019	Jackups	1.7		1.0		0.7
			$	84.9	$	64.4	$	20.5



Rig	Date of Sale	Classification⁽¹⁾	Segment⁽¹⁾	Net Proceeds		Net Book Value⁽²⁾		Pre-tax Gain/(Loss)
ENSCO 80	August 2018	Continuing	Jackups	$	1.0	$	.5	$	.5
ENSCO 5005	August 2018	Continuing	Floaters	4.0		2.0		2.0
ENSCO 6001	July 2018	Continuing	Floaters	2.0		.9		1.1
ENSCO 7500	April 2018	Discontinued	Floaters	2.6		1.5		1.1
ENSCO 81	April 2018	Continuing	Jackups	1.0		.3		.7
ENSCO 82	April 2018	Continuing	Jackups	1.0		.3		.7
ENSCO 52	August 2017	Continuing	Jackups	.8		.4		.4
ENSCO 86	June 2017	Continuing	Jackups	.3		.3		—
ENSCO 90	June 2017	Discontinued	Jackups	.3		.3		—
ENSCO 99	June 2017	Continuing	Jackups	.3		.3		—
ENSCO 56	April 2017	Continuing	Jackups	1.0		.3		.7
ENSCO 94	November 2016	Continuing	Jackups	.9		.3		.6
ENSCO 53	October 2016	Continuing	Jackups	.9		.3		.6
ENSCO DS-1	June 2016	Continuing	Floaters	5.0		2.3		2.7
ENSCO 6004	May 2016	Continuing	Floaters	.9		.9		—
ENSCO 6003	May 2016	Continuing	Floaters	.9		.9		—
ENSCO DS-2	May 2016	Discontinued	Floaters	5.0		4.0		1.0
ENSCO 91	May 2016	Continuing	Jackups	.8		.3		.5
ENSCO 58	April 2016	Discontinued	Jackups	.7		.3		.4
ENSCO 6000	April 2016	Discontinued	Floaters	.6		.8		(.2		)
				$	30.0	$	17.2	$	12.8


⁽¹⁾	(1) Classification denotes the location of the operating results and gain (loss) on sale for each rig in our consolidated statements of operations. For rigs' operating results that were reclassified to discontinued operations in our consolidated statements of operations, these results were previously included within the specified operating segment.


⁽²⁾	~~Includes the rig's net book value as well as inventory and other assets on the date of the sale.~~



	Aggregate Principal Amount Repurchased		Aggregate Repurchase Price⁽¹⁾
8.50% Senior notes due 2019	$	237.6	$	256.8
6.875% Senior notes due 2020	328.0		354.7
4.70% Senior notes due 2021	156.2		159.7
Total	$	721.8	$	771.2



	Aggregate Principal Amount Repurchased		8% Senior Notes Due 2024 Consideration		Cash Consideration		Total Consideration
8.50% Senior notes due 2019	$	145.8	$	81.6	$	81.7	$	163.3
6.875% Senior notes due 2020	129.8		69.3		69.4		138.7
4.70% Senior notes due 2021	373.9		181.1		181.4		362.5
Total	$	649.5	$	332.0	$	332.5	$	664.5



Senior Notes	Original Principal		2016 Tenders, Repurchases and Equity Exchange			2017 Exchange Offers Repurchases			2018 Tender Offers, Redemption and Debt Issuance			Remaining Principal
8.50% due 2019	$	500.0	$	(62.0	)	$	(200.4	)	$	(237.6	)	$	—
6.875% due 2020	900.0		(219.2		)	(229.9		)	(328.0		)	122.9
4.70% due 2021	1,500.0		(817.0		)	(413.3		)	(156.2		)	113.5
3.00% Exchangeable senior notes due 2024	849.5		—			—			—			849.5
4.50% due 2024	625.0		(1.7		)	—			—			623.3
8.00% due 2024	—		—			332.0			—			332.0
5.20% due 2025	700.0		(30.7		)	—			—			669.3
7.75% due 2026	—		—			—			1,000.0			1,000.0
7.20% due 2027	150.0		—			—			—			150.0
7.875% due 2040	300.0		—			—			—			300.0
5.75% due 2044	1,025.0		(24.5		)	—			—			1,000.5
Total	$	6,549.5	$	(1,155.1	)	$	(511.6	)	$	278.2		$	5,161.0



	Payments due by period
	2019		2020 and 2021		2022 and 2023		Thereafter		Total
Principal payments on long-term debt	$	—	$	236.4	$	—	$	4,924.6	$	5,161.0
Interest payments on long-term debt	298.1		585.2		568.7		1,953.0		3,405.0
New rig construction agreements^{(1) (2)}	92.9		165.0		—		—		257.9
Operating leases	32.3		30.6		18.1		15.2		96.2
Total contractual obligations⁽³⁾	$	423.3	$	1,017.2	$	586.8	$	6,892.8	$	8,920.1



Increase (decrease) in useful lives of our drilling rigs		Estimated (decrease) increase in depreciation expense that would have been recognized (in millions)
10%		$(38.6)
20%		(70.7)
(10%)		45.1
(20%)		101.7



	Contract Assets			Contract Liabilities
Balance as of December 31, 2017	$	5.8		$	123.1
Revenue recognized in advance of right to bill customer	2.2			—
Increase due to cash received	—			49.4
Decrease due to amortization of deferred revenue that was included in the beginning contract liability balance	—			(72.0		)
Decrease due to amortization of deferred revenue that was added during the period	—			(23.1		)
Decrease due to transfer to receivables during the period	(4.0		)	—
Balance as of December 31, 2018	$	4.0		$	77.4



	Amounts Recognized as of Merger Date			Measurement Period Adjustments ⁽¹⁾			Estimated Fair Value
Assets:
Cash and cash equivalents⁽²⁾	$	445.4		$	—		$	445.4
Accounts receivable⁽³⁾	62.3			(1.6		)	60.7
Other current assets	118.1			4.6			122.7
Property and equipment	1,762.0			9.2			1,771.2
Other assets	23.7			(5.1		)	18.6
Liabilities:
Accounts payable and accrued liabilities	64.9			(1.1		)	63.8
Other liabilities	118.7			6.4			125.1
Net assets acquired	2,227.9			1.8			2,229.7
Less:
Merger consideration	(781.8		)				(781.8		)
Repayment of Atwood debt⁽²⁾	(1,305.9		)				(1,305.9		)
Bargain purchase gain	$	140.2					$	142.0



(in millions, except per share amounts)	Twelve Months Ended (Unaudited)
	2017⁽¹⁾			2016
Revenues	$	2,226.0		$	3,622.1
Net income (loss)	(347.0		)	1,284.9
Earnings (loss) per share - basic and diluted	(.80		)	3.18



	2018		2017
8.50% Senior notes due 2019⁽¹⁾	$	—	$	251.4
6.875% Senior notes due 2020⁽¹⁾	127.5		477.9
4.70% Senior notes due 2021⁽¹⁾	112.7		267.1
3.00% Exchangeable senior notes due 2024⁽²⁾	666.8		635.7
4.50% Senior notes due 2024	619.8		619.3
8.00% Senior notes due 2024	337.0		337.9
5.20% Senior notes due 2025	664.4		663.6
7.75% Senior notes due 2026	985.0		—
7.20% Debentures due 2027	149.3		149.3
7.875% Senior notes due 2040	375.0		376.7
5.75% Senior notes due 2044	972.9		971.8
Total long-term debt	$	5,010.4	$	4,750.7



Liability component:	2018			2017
Principal	$	849.5		$	849.5
Less: Unamortized debt discount and issuance costs	(182.7		)	(213.8		)
Net carrying amount	666.8			635.7
Equity component, net	$	220.0		$	220.0



	Derivative Assets				Derivative Liabilities
	2018		2017		2018		2017
Derivatives Designated as Hedging Instruments
Foreign currency forward contracts - current⁽¹⁾	$	.2	$	5.9	$	8.3	$	.2
Foreign currency forward contracts - non-current⁽²⁾	—		.5		.4		.1
	.2		6.4		8.7		.3
Derivatives not Designated as Hedging Instruments
Foreign currency forward contracts - current⁽¹⁾	.4		.9		2.6		.2
Total	$	.6	$	7.3	$	11.3	$	.5



	Gain (Loss) Recognized in Other Comprehensive Income ("OCI") on Derivatives (Effective Portion)								(Gain) Loss Reclassified from AOCI into Income (Effective Portion)⁽¹⁾							Gain (Loss) Recognized in Income on Derivatives (Ineffective Portion and Amount Excluded from Effectiveness Testing)⁽²⁾
	2018			2017		2016			2018			2017		2016		2018			2017			2016
Interest rate lock contracts⁽³⁾	$	—		$	—	$	—		$	.2		$	.2	$	.2	$	—		$	—		$	—
Foreign currency forward contracts⁽⁴⁾	(9.7		)	8.5		(5.4		)	(1.2		)	.2		12.2		(1.9		)	(.7		)	1.9
Total	$	(9.7	)	$	8.5	$	(5.4	)	$	(1.0	)	$	.4	$	12.4	$	(1.9	)	$	(.7	)	$	1.9