~~ENSCO~~

VALARIS PLC

INDEX TO FORM 10-Q

FOR THE QUARTER ENDED ~~SEPTEMBER~~JUNE 30, ~~2017~~2020



PART I FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

Report of Independent Registered Public Accounting Firm	3

~~Condensed Consolidated Statements of Operations~~ ~~Three Months Ended September 30, 2017 and 2016~~	4

Condensed Consolidated Statements of Operations ~~Nine~~ Three Months Ended ~~September~~June 30, ~~2017~~2020 and ~~2016~~2019	5

Condensed Consolidated Statements of ~~Comprehensive (Loss) Income~~ ~~Three~~Operations Six Months Ended ~~September~~June 30, ~~2017~~2020 and ~~2016~~2019	6

Condensed Consolidated Statements of Comprehensive Income (Loss) ~~Income~~ ~~Nine~~ Three Months Ended ~~September~~June 30, ~~2017~~2020 and ~~2016~~2019	7

Condensed Consolidated ~~Balance Sheets~~ ~~September~~Statements of Comprehensive Income (Loss) Six Months Ended June 30, ~~2017~~2020 and ~~December 31, 2016~~2019	8

Condensed Consolidated ~~Statements of Cash Flows~~ ~~Nine Months Ended September~~Balance Sheets June 30, ~~2017~~2020 and ~~2016~~December 31, 2019	9

~~Notes to~~ Condensed Consolidated ~~Financial~~ Statements of Cash Flows Six Months Ended June 30, 2020 and 2019	10

Notes to Condensed Consolidated Financial Statements	11

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	4355

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	5976

ITEM 4. CONTROLS AND PROCEDURES	5976

PART II OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS	6077

ITEM 1A. RISK FACTORS	6378

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	6479

ITEM 6. EXHIBITS	6580

SIGNATURES	6681

FORWARD-LOOKING STATEMENTS

Statements contained in this report that are not historical facts are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Forward-looking statements include words or phrases such as "anticipate," "believe," "estimate," "expect," "intend," "likely," "plan," "project," "could," "may," "might," "should," "will" and similar words and specifically include statements regarding expected financial performance; ~~dividends;~~our ability to continue to meet the financial covenants in our debt agreements and continue as a going concern; the success of our ongoing efforts to develop and implement a restructuring of our capital structure; expected utilization, day rates, revenues, operating expenses, cash flow, contract terms, contract backlog, capital expenditures, insurance, financing and funding; the ~~timing~~effect, impact, potential duration and other implications of ~~availability, delivery, mobilization, contract commencement or relocation or other movement of rigs and~~ the timing thereof; future rig construction (including construction in progress and completion thereof), enhancement, upgrade or repair and timing and cost thereof; the suitability of rigs for future contracts;COVID-19 global pandemic; the offshore drilling market, including supply and demand, customer drilling programs, stacking of rigs, effects of new rigs on the market and effects of declines in commodity prices; expected work commitments, awards and contracts; the timing of availability, delivery, mobilization, contract commencement or relocation or other movement of rigs and the timing thereof; future rig construction (including work in progress and completion thereof), enhancement, upgrade or repair and timing and cost thereof; the suitability of rigs for future contracts; performance of our joint venture with Saudi Arabian Oil Company ("Saudi Aramco"); expected divestitures of assets; general market, business and industry conditions, trends and outlook; future operations; the impact of increasing regulatory complexity; the outcome of tax disputes, assessments and settlements; our program to high-grade the rig fleet by investing in new equipment and divesting selected assets and underutilized rigs; synergies and expected additional cost savings; dividends; expense management; and the likely outcome of litigation, legal proceedings, investigations or insurance or other claims or contract disputes and the timing thereof.

Such statements are subject to numerous risks, uncertainties and assumptions that may cause actual results to vary materially from those indicated, particularly in light of difficult market conditions, our projected negative cash flows in 2020 and highly leveraged balance sheet, including:

our failure to satisfy the obligations with respect to our indebtedness, including our missed interest payments and other cross-defaults or payment defaults, and any expiration of the related forbearance and waiver agreements with our lenders and bondholders, which have raised substantial doubt about our ability to ~~successfully integrate~~ continue as a going concern;

the ~~business, operations and employees~~outcome of ~~Atwood Oceanics, Inc. (“Atwood”) and to realize synergies and cost savings in connection~~any discussions with our ~~acquisition~~lenders and bondholders regarding the terms of ~~Atwood;~~a potential restructuring of our indebtedness or reorganization of the Company and any resulting dilution for our shareholders;

the COVID-19 global pandemic, the related public health measures implemented by governments worldwide and the decline in oil prices during 2020, including the duration and severity of the outbreak, the duration of the price and demand decline and the extent of disruptions to our operations;

~~changes~~the dispute over production levels among members of the Organization of Petroleum Exporting Countries and other oil and gas producing nations (“OPEC+”);

decreases in ~~future~~ levels of drilling activity and capital expenditures by our customers, whether as a result of the global capital markets and liquidity, prices of oil and natural gas or otherwise, which may cause us to idle or stack additional rigs;

delays in contract commencement dates or cancellation, suspension, renegotiation or termination (with or without cause) of drilling contracts or drilling programs as a result of general and industry-specific economic conditions, mechanical difficulties, performance or other reasons;

potential additional asset impairments, including the impact of any impairment on our compliance with debt covenants, our ability to continue to borrow under our revolving credit facility and any resulting acceleration of our debt;

our ability to obtain financing, service our indebtedness, fund negative cash flows and capital expenditures and pursue other business opportunities, which may be limited by our significant debt levels, debt agreement restrictions and the credit ratings assigned to our debt by independent credit rating agencies;

the adequacy of sources of liquidity for us and our customers;

the reaction of our customers, prospective customers, suppliers and service providers to the increased performance and credit risks associated with our constrained liquidity position and capital structure, which reflects a recently increased risk of bankruptcy or insolvency proceedings;

potential delisting of our Class A ordinary shares from the New York Stock Exchange ("NYSE") if we fail to satisfy the NYSE's minimum share price requirement, which could result in the holders of our 2024 Convertible Notes having the right to require us to repurchase the notes at a price equal to the principal amount thereof plus accrued interest to the repurchase date;

our ability to attract and retain skilled personnel on commercially reasonable terms, whether due to labor regulations, unionization, or otherwise, or to retain employees, customers or suppliers as a result of our financial condition generally or as a result of a potential restructuring of our indebtedness or reorganization of the Company;

internal control risk due to significant employee reductions;

our ability to successfully integrate the business, operations and employees of Rowan Companies Limited (formerly Rowan Companies plc) ("Rowan") and the Company to realize synergies and cost savings in connection with the Rowan Transaction (as defined herein);

changes in worldwide rig supply and demand, competition or technology, including as a result of delivery of newbuild drilling rigs;

downtime and other risks associated with offshore rig operations, including rig or equipment failure, damage and other unplanned repairs, the limited availability of transport vessels, hazards, self-imposed drilling limitations and other delays due to severe storms and hurricanes and the limited availability or high cost of insurance coverage for certain offshore perils, such as hurricanes in the Gulf of Mexico or associated removal of wreckage or debris;

our ability to successfully recover losses from underwriters under our loss of hire policy in connection with the VALARIS DS-8 non-drilling incident;

governmental action, terrorism, piracy, military action and political and economic uncertainties, including uncertainty or instability resulting from the U.K.'s withdrawal from the European Union, civil unrest, political demonstrations, mass strikes, or an escalation or additional outbreak of armed hostilities or other crises in oil or natural gas producing areas of the Middle East, North Africa, West Africa or other geographic areas, which may result in expropriation, nationalization, confiscation or deprivation or destruction of our ~~assets~~assets; or suspension and/or termination of contracts based on force majeure events or adverse environmental safety events;

risks inherent to shipyard rig construction, repair, modification or upgrades, unexpected delays in equipment delivery, engineering, design or commissioning issues following delivery, or changes in the commencement, completion or service dates;

possible cancellation, suspension, renegotiation or termination (with or without cause) of drilling contracts as a result of general and industry-specific economic conditions, mechanical difficulties, performance or other reasons;

our ability to enter into, and the terms of, future drilling contracts, including contracts for our newbuild units and acquired rigs, for rigs currently idled and for rigs whose contracts are expiring;

any failure to execute definitive contracts following announcements of letters of intent, letters of award or other expected work commitments;

the outcome of litigation, legal proceedings, investigations or other claims or contract disputes, including any inability to collect receivables or resolve significant contractual or day rate disputes, any renegotiation, nullification, cancellation or breach of contracts with customers or other parties and any failure to execute definitive contracts following announcements of letters of intent;

governmental regulatory, legislative and permitting requirements affecting drilling operations, including limitations on drilling locations (such as the Gulf of Mexico during hurricane season); and regulatory measures to limit or reduce greenhouse gases;

potential impacts on our business resulting from climate-change or greenhouse gas legislation or regulations, and the impact on our business from climate-change related physical changes or changes in weather patterns;

new and future regulatory, legislative or permitting requirements, future lease sales, changes in laws, rules and regulations that have or may impose increased financial responsibility, additional oil spill abatement contingency plan capability requirements and other governmental actions that may result in claims of force majeure or otherwise adversely affect our existing drilling contracts, operations or financial results;

~~our ability to attract and retain skilled personnel on commercially reasonable terms, whether due to labor regulations, unionization or otherwise;~~

environmental or other liabilities, risks, damages or losses, whether related to storms, hurricanes or ~~hurricanes~~other weather-related events (including wreckage or debris removal), collisions, groundings, blowouts, fires, explosions, other accidents, terrorism or otherwise, for which insurance coverage and contractual indemnities may be insufficient, unenforceable or otherwise unavailable;

our ability to obtain financing, service indebtedness and pursue other business opportunities may be limited by our debt levels, debt agreement restrictions and the credit ratings assigned to our debt by independent credit rating agencies;

~~the adequacy of sources of liquity for us and our customers;~~

tax matters, including our effective tax rates, tax positions, results of audits, changes in tax laws, treaties and regulations, tax assessments and liabilities for taxes;

our ability to realize the expected benefits of our joint venture with Saudi Aramco, including our ability to fund any required capital contributions;

~~delays~~activism by our security holders;

economic volatility and political, legal and tax uncertainties following the June 23, 2016, vote in ~~contract commencement dates~~the U.K. to exit from the European Union;

the occurrence of cybersecurity incidents, attacks or ~~the cancellation of drilling programs by operators;~~

other breaches to our information technology systems, including our rig operating systems; and

adverse changes in foreign currency exchange rates, including their effect on the fair value measurement of our derivative ~~instruments; and~~instruments.

~~potential long-lived asset impairments.~~

In addition to the numerous risks, uncertainties and assumptions described above, you should also carefully read and consider "Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations" in Part I and "Item 1A. Risk Factors" in Part II of this report and "Item 1A. Risk Factors" in Part I and "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" in Part II of our annual report on Form 10-K for the year ended December 31, ~~2016,~~2019, as updated in Item 1A of Part II of our Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2020, which is available on the U.S. Securities and Exchange Commission website at www.sec.gov. Each forward-looking statement speaks only as of the date of the particular statement, and we undertake no obligation to publicly update or revise any ~~forward-looking~~forward looking statements, except as required by law.

PART I - FINANCIAL INFORMATION

Item 1.Financial Statements

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

~~The~~To the Board of Directors and Shareholders

~~Ensco~~Valaris plc:

Results of Review of Interim Financial Information

We have reviewed the ~~accompanying~~ condensed consolidated balance sheet of ~~Ensco~~Valaris plc and subsidiaries (the ~~Company)~~Company, formerly known as Ensco Rowan plc and Ensco plc) as of ~~September~~June 30, ~~2017, and~~2020, the related condensed consolidated statements of operations and comprehensive income (loss) ~~income~~ for the ~~three-month~~three and ~~nine-month~~six-month periods ended ~~September~~June 30, ~~2017~~2020 and ~~2016, and~~2019, the related condensed consolidated statements of cash flows for the ~~nine-month~~six-month periods ended ~~September~~June 30, ~~2017~~2020 and ~~2016. These condensed~~2019, and the related notes (collectively, the consolidated interim financial ~~statements~~information). Based on our reviews, we are not aware of any material modifications that should be made to the ~~responsibility of the Company’s management.~~consolidated interim financial information for it to be in conformity with U.S. generally accepted accounting principles.

We ~~conducted our review~~have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States). (PCAOB), the consolidated balance sheet of the Company as of December 31, 2019, and the related consolidated statements of operations, comprehensive loss, and cash flows for the year then ended (not presented herein); and in our report dated February 21, 2020, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of December 31, 2019, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.

Inability to Continue as a Going Concern

As indicated in Note 1 of the Company's unaudited condensed consolidated interim financial information as of June 30, 2020 and for the three-month and six-month periods then ended, certain conditions indicate that the Company may be unable to continue as a going concern. The accompanying unaudited and condensed consolidated interim financial information does not include any adjustments that might result from the outcome of this uncertainty.

Basis for Review Results

This consolidated interim financial information is the responsibility of the Company’s management. 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 reviews in accordance with the standards of the PCAOB. A review of consolidated interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the ~~Public Company Accounting Oversight Board (United States),~~PCAOB, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

Based on our review, we are not aware of any material modifications that should be made to the condensed consolidated financial statements referred to above for them to be in conformity with U.S. generally accepted accounting principles.

We have previously audited, in accordance with standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of Ensco plc and subsidiaries as of December 31, 2016 and the related consolidated statements of operations, comprehensive income (loss), and cash flows for the year then ended (not presented herein); and in our report dated February 28, 2017, we expressed an unqualified opinion on those consolidated financial statements.In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of December 31, 2016, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.

/s/ KPMG LLP

Houston, Texas

~~October 26, 2017~~July 30, 2020

~~ENSCO~~

VALARIS PLC AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In millions, except per share amounts)

(Unaudited)

Three Months Ended
September 30,
2017 2016
OPERATING REVENUES $ 460.2
$ 548.2
OPERATING EXPENSES
Contract drilling (exclusive of depreciation) 285.8
298.1
Depreciation 108.2
109.4
General and administrative 30.4
25.3
424.4
432.8
OPERATING INCOME 35.8
115.4
OTHER INCOME (EXPENSE)
Interest income 7.5
3.8
Interest expense, net (48.1 ) (53.4 )
Other, net .2
18.7
(40.4 ) (30.9 )
(LOSS) INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES (4.6 ) 84.5
PROVISION FOR INCOME TAXES
Current income tax expense (benefit) 14.9
(5.7 )
Deferred income tax expense 8.5
2.2
23.4
(3.5 )
(LOSS) INCOME FROM CONTINUING OPERATIONS (28.0 ) 88.0
LOSS FROM DISCONTINUED OPERATIONS, NET (.2 ) (.7 )
NET (LOSS) INCOME (28.2 ) 87.3
NET LOSS (INCOME) ATTRIBUTABLE TO NONCONTROLLING INTERESTS 2.8
(2.0 )
NET (LOSS) INCOME ATTRIBUTABLE TO ENSCO $ (25.4 ) $ 85.3
(LOSS) EARNINGS PER SHARE - BASIC AND DILUTED
Continuing operations $ (0.08 ) $ 0.28
Discontinued operations —
—
$ (0.08 ) $ 0.28

NET (LOSS) INCOME ATTRIBUTABLE TO ENSCO SHARES - BASIC AND DILUTED $ (25.5 ) $ 83.5

WEIGHTED-AVERAGE SHARES OUTSTANDING
Basic and Diluted 301.2
298.6

CASH DIVIDENDS PER SHARE $ 0.01
$ 0.01



	Three Months Ended June 30,
	2020			2019
OPERATING REVENUES	$	388.8		$	583.9
OPERATING EXPENSES
Contract drilling (exclusive of depreciation)	370.7			500.3
Loss on impairment	838.0			2.5
Depreciation	131.5			157.9
General and administrative	62.6			81.2
Total operating expenses	1,402.8			741.9
EQUITY IN EARNINGS OF ARO	(5.2		)	.6
OPERATING LOSS	(1,019.2		)	(157.4		)
OTHER INCOME (EXPENSE)
Interest income	5.7			11.9
Interest expense, net	(116.2		)	(118.3		)
Other, net	5.1			703.7
	(105.4		)	597.3
INCOME (LOSS) BEFORE INCOME TAXES	(1,124.6		)	439.9
PROVISION (BENEFIT) FOR INCOME TAXES
Current income tax expense	13.8			21.2
Deferred income tax expense (benefit)	(29.6		)	11.4
	(15.8		)	32.6
NET INCOME (LOSS)	(1,108.8		)	407.3
NET (INCOME) LOSS ATTRIBUTABLE TO NONCONTROLLING INTERESTS	1.4			(1.8		)
NET INCOME (LOSS) ATTRIBUTABLE TO VALARIS	$	(1,107.4	)	$	405.5
EARNINGS (LOSS) PER SHARE - BASIC AND DILUTED	$	(5.58	)	$	2.09
WEIGHTED-AVERAGE SHARES OUTSTANDING
Basic and Diluted	198.6			188.6

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

~~ENSCO~~

VALARIS PLC AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In millions, except per share amounts)

(Unaudited)

Nine Months Ended
September 30,
2017 2016
OPERATING REVENUES $ 1,388.8
$ 2,271.8
OPERATING EXPENSES
Contract drilling (exclusive of depreciation) 855.2
1,012.0
Depreciation 325.3
335.1
General and administrative 86.9
76.1
1,267.4
1,423.2
OPERATING INCOME 121.4
848.6
OTHER INCOME (EXPENSE)

Interest income 22.3
8.6
Interest expense, net (167.0 ) (172.5 )
Other, net (6.6 ) 278.3
(151.3 ) 114.4
(LOSS) INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES (29.9 ) 963.0
PROVISION FOR INCOME TAXES
Current income tax expense 32.3
81.0
Deferred income tax expense 34.5
23.6
66.8
104.6
(LOSS) INCOME FROM CONTINUING OPERATIONS (96.7 ) 858.4
LOSS FROM DISCONTINUED OPERATIONS, NET (.4 ) (1.8 )
NET (LOSS) INCOME (97.1 ) 856.6
NET LOSS (INCOME) ATTRIBUTABLE TO NONCONTROLLING INTERESTS .5
(5.4 )
NET (LOSS) INCOME ATTRIBUTABLE TO ENSCO $ (96.6 ) $ 851.2
(LOSS) EARNINGS PER SHARE - BASIC AND DILUTED
Continuing operations $ (0.32 ) $ 3.07
Discontinued operations —
—
$ (0.32 ) $ 3.07

NET (LOSS) INCOME ATTRIBUTABLE TO ENSCO SHARES - BASIC AND DILUTED $ (96.9 ) $ 836.1

WEIGHTED-AVERAGE SHARES OUTSTANDING
Basic and Diluted 300.9
272.0

CASH DIVIDENDS PER SHARE $ 0.03
$ 0.03

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

~~ENSCO PLC AND SUBSIDIARIES~~

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

~~(In millions)~~

~~(Unaudited)~~

Three Months Ended
September 30,
2017 2016

NET (LOSS) INCOME $ (28.2 ) $ 87.3
OTHER COMPREHENSIVE INCOME (LOSS), NET
Net change in derivative fair value 1.7
—
Reclassification of net (income) losses on derivative instruments from other comprehensive income into net (loss) income (.1 ) 2.2
Other .1
(.5 )
NET OTHER COMPREHENSIVE INCOME 1.7
1.7

COMPREHENSIVE (LOSS) INCOME (26.5 ) 89.0
COMPREHENSIVE LOSS (INCOME) ATTRIBUTABLE TO NONCONTROLLING INTERESTS 2.8
(2.0 )
COMPREHENSIVE (LOSS) INCOME ATTRIBUTABLE TO ENSCO $ (23.7 ) $ 87.0

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

~~ENSCO PLC AND SUBSIDIARIES~~

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

~~(In millions)~~

~~(Unaudited)~~

Nine Months Ended
September 30,
2017 2016

NET (LOSS) INCOME $ (97.1 ) $ 856.6
OTHER COMPREHENSIVE INCOME, NET
Net change in derivative fair value 7.7
(.6 )
Reclassification of net losses on derivative instruments from other comprehensive income into net (loss) income 1.1
10.1
Other .8
(.5 )
NET OTHER COMPREHENSIVE INCOME 9.6
9.0

COMPREHENSIVE (LOSS) INCOME (87.5 ) 865.6
COMPREHENSIVE INCOME ATTRIBUTABLE TO NONCONTROLLING INTERESTS .5
(5.4 )
COMPREHENSIVE (LOSS) INCOME ATTRIBUTABLE TO ENSCO $ (87.0 ) $ 860.2



	Six Months Ended June 30,
	2020			2019
OPERATING REVENUES	$	845.4		$	989.8
OPERATING EXPENSES
Contract drilling (exclusive of depreciation)	846.7			832.9
Loss on impairment	3,646.2			2.5
Depreciation	296.0			282.9
General and administrative	116.0			110.8
Total operating expenses	4,904.9			1,229.1
EQUITY IN EARNINGS OF ARO	(11.5		)	.6
OPERATING LOSS	(4,071.0		)	(238.7		)
OTHER INCOME (EXPENSE)
Interest income	10.5			15.4
Interest expense, net	(229.4		)	(199.3		)
Other, net	5.6			706.0
	(213.3		)	522.1
INCOME (LOSS) BEFORE INCOME TAXES	(4,284.3		)	283.4
PROVISION (BENEFIT) FOR INCOME TAXES
Current income tax expense (benefit)	(58.7		)	46.8
Deferred income tax expense (benefit)	(109.1		)	17.3
	(167.8		)	64.1
NET INCOME (LOSS)	(4,116.5		)	219.3
NET (INCOME) LOSS ATTRIBUTABLE TO NONCONTROLLING INTERESTS	2.8			(4.2		)
NET INCOME (LOSS) ATTRIBUTABLE TO VALARIS	$	(4,113.7	)	$	215.1
EARNINGS (LOSS) PER SHARE - BASIC AND DILUTED	$	(20.75	)	$	1.40
WEIGHTED-AVERAGE SHARES OUTSTANDING
Basic and Diluted	198.3			148.9

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

~~ENSCO~~

VALARIS PLC AND SUBSIDIARIES

CONDENSED CONSOLIDATED ~~BALANCE SHEETS~~STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(In ~~millions, except share and par value amounts)~~millions)

(Unaudited)

September 30,
2017 December 31,
2016
(Unaudited)
ASSETS
CURRENT ASSETS
    Cash and cash equivalents $ 724.4
$ 1,159.7
    Short-term investments 1,069.8
1,442.6
    Accounts receivable, net 349.0
361.0
    Other 318.3
316.0
Total current assets 2,461.5
3,279.3
PROPERTY AND EQUIPMENT, AT COST 13,492.6
12,992.5
    Less accumulated depreciation 2,396.2
2,073.2
       Property and equipment, net 11,096.4
10,919.3
OTHER ASSETS, NET 125.0
175.9
$ 13,682.9
$ 14,374.5
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable - trade $ 187.9
$ 145.9
Accrued liabilities and other 300.8
376.6
Current maturities of long-term debt —
331.9
Total current liabilities 488.7
854.4
LONG-TERM DEBT 4,747.7
4,942.6
OTHER LIABILITIES 279.2
322.5
COMMITMENTS AND CONTINGENCIES

ENSCO SHAREHOLDERS' EQUITY

Class A ordinary shares, U.S. $.10 par value, 314.9 million and 310.3 million shares issued as of September 30, 2017 and December 31, 2016 31.5
31.0
Class B ordinary shares, £1 par value, 50,000 shares authorized and issued as of September 30, 2017 and December 31, 2016 .1
.1
Additional paid-in capital 6,429.8
6,402.2
Retained earnings 1,744.2
1,864.1
Accumulated other comprehensive income 28.6
19.0
Treasury shares, at cost, 11.0 million and 7.3 million shares as of September 30, 2017 and December 31, 2016 (69.0 ) (65.8 )
Total Ensco shareholders' equity 8,165.2
8,250.6
NONCONTROLLING INTERESTS 2.1
4.4
Total equity 8,167.3
8,255.0
$ 13,682.9
$ 14,374.5



	Three Months Ended June 30,
	2020			2019
NET INCOME (LOSS)	$	(1,108.8	)	$	407.3
OTHER COMPREHENSIVE INCOME (LOSS), NET
Net change in derivative fair value	4.8			(1.6		)
Reclassification of net (gains) losses on derivative instruments from other comprehensive income (loss) into net income (loss)	(10.9		)	1.8
NET OTHER COMPREHENSIVE INCOME (LOSS)	(6.1		)	.2
COMPREHENSIVE INCOME (LOSS)	(1,114.9		)	407.5
COMPREHENSIVE (INCOME) LOSS ATTRIBUTABLE TO NONCONTROLLING INTERESTS	1.4			(1.8		)
COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO VALARIS	$	(1,113.5	)	$	405.7

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

~~ENSCO~~

VALARIS PLC AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(In millions)

(Unaudited)



	Six Months Ended June 30,
	2020			2019
NET INCOME (LOSS)	$	(4,116.5	)	$	219.3
OTHER COMPREHENSIVE INCOME (LOSS), NET
Net change in derivative fair value	(8.1		)	(1.6		)
Reclassification of net (gains) losses on derivative instruments from other comprehensive income (loss) into net income (loss)	(11.0		)	3.4
Other	(.4		)	(.1		)
NET OTHER COMPREHENSIVE INCOME (LOSS)	(19.5		)	1.7
COMPREHENSIVE INCOME (LOSS)	(4,136.0		)	221.0
COMPREHENSIVE (INCOME) LOSS ATTRIBUTABLE TO NONCONTROLLING INTERESTS	2.8			(4.2		)
COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO VALARIS	$	(4,133.2	)	$	216.8

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

VALARIS PLC AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In millions, except share and par value amounts)



	June 30, 2020			December 31, 2019
	(Unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents	$	202.0		$	97.2
Accounts receivable, net	363.3			520.7
Other current assets	500.8			446.5
Total current assets	1,066.1			1,064.4
PROPERTY AND EQUIPMENT, AT COST	13,220.3			18,393.8
Less accumulated depreciation	2,027.7			3,296.9
Property and equipment, net	11,192.6			15,096.9
LONG-TERM NOTES RECEIVABLE FROM ARO	452.8			452.9
INVESTMENT IN ARO	117.2			128.7
OTHER ASSETS	210.2			188.3
	$	13,038.9		$	16,931.2
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable - trade	$	151.9		$	288.2
Accrued liabilities and other	398.1			417.7
Current maturities of long-term debt	2,518.1			124.8
Total current liabilities	3,068.1			830.7
LONG-TERM DEBT	4,092.2			5,923.5
OTHER LIABILITIES	693.2			867.4
COMMITMENTS AND CONTINGENCIES
VALARIS SHAREHOLDERS' EQUITY
Class A ordinary shares, U.S. $.40 par value, 206.1 and 205.9 million shares issued as of June 30, 2020 and December 31, 2019	82.5			82.4
Class B ordinary shares, £1 par value, 50,000 shares issued as of June 30, 2020 and December 31, 2019	.1			.1
Additional paid-in capital	8,639.9			8,627.8
Retained (deficit) earnings	(3,442.0		)	671.7
Accumulated other comprehensive (loss) income	(13.3		)	6.2
Treasury shares, at cost, 6.8 million and 7.9 million shares as of June 30, 2020 and December 31, 2019	(76.8		)	(77.3		)
Total Valaris shareholders' equity	5,190.4			9,310.9
NONCONTROLLING INTERESTS	(5.0		)	(1.3		)
Total equity	5,185.4			9,309.6
	$	13,038.9		$	16,931.2

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

VALARIS PLC AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In millions)

(Unaudited)


	Nine Months Ended September 30,						Six Months Ended June 30,
	2017			2016			2020			2019
OPERATING ACTIVITIES
Net (loss) income	$	(97.1	)	$	856.6
Adjustments to reconcile net (loss) income to net cash provided by operating activities of continuing operations:
Net income (loss)							$	(4,116.5	)	$	219.3
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Loss on impairment							3,646.2			2.5
Depreciation expense	325.3			335.1			296.0			282.9
Deferred income tax expense	34.5			23.6
Deferred income tax expense (benefit)							(109.1		)	17.3
Debt discounts and other							28.8			8.7
Share-based compensation expense	31.3			28.7			13.5			19.2
Amortization of intangibles and other, net	(8.7		)	(16.2		)
Loss (gain) on debt extinguishment	2.6			(279.0		)
Amortization, net							12.2			(17.3		)
Equity in earnings of ARO							11.5			(.6		)
(Gain on) adjustment to bargain purchase							6.3			(712.8		)
Other	(.3		)	(2.9		)	(2.7		)	2.9
Changes in operating assets and liabilities	(68.0		)	48.9			(156.7		)	(111.5		)
Net cash provided by operating activities of continuing operations	219.6			994.8

Contributions to pension plans and other post-retirement benefits							(10.6		)	(4.0		)
Net cash used in operating activities							(381.1		)	(293.4		)
INVESTING ACTIVITIES
Additions to property and equipment							(67.1		)	(134.8		)
Net proceeds from disposition of assets							13.8			4.5
Maturities of short-term investments	1,412.7			1,582.0			—			339.0
Rowan cash acquired							—			931.9
Purchases of short-term investments	(1,040.0		)	(1,704.0		)	—			(145.0		)
Additions to property and equipment	(474.1		)	(255.5		)
Net cash provided by (used in) investing activities							(53.3		)	995.6
FINANCING ACTIVITIES
Borrowings on credit facility							566.0			—
Repayments of credit facility borrowings							(15.0		)	—
Reduction of long-term borrowings							(9.7		)	—
Debt solicitation fees							—			(8.7		)
Cash dividends paid							—			(4.5		)
Other	2.6			7.7			(1.9		)	(4.7		)
Net cash used in investing activities of continuing operations	(98.8		)	(369.8		)

FINANCING ACTIVITIES
Reduction of long-term borrowings	(537.0		)	(862.4		)
Cash dividends paid	(9.4		)	(8.5		)
Debt issuance costs	(5.5		)	—
Proceeds from equity issuance	—			585.5
Other	(4.5		)	(2.3		)
Net cash used in financing activities	(556.4		)	(287.7		)

Net cash (used in) provided by discontinued operations	(.4		)	7.4
Net cash provided by (used in) financing activities							539.4			(17.9		)
Effect of exchange rate changes on cash and cash equivalents	.7			(.6		)	(.2		)	(.3		)
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS	(435.3		)	344.1
INCREASE IN CASH AND CASH EQUIVALENTS							104.8			684.0
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD	1,159.7			121.3			97.2			275.1
CASH AND CASH EQUIVALENTS, END OF PERIOD	$	724.4		$	465.4		$	202.0		$	959.1

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

~~ENSCO~~

VALARIS PLC AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 1 -Unaudited Condensed Consolidated Financial Statements

On April 11, 2019, we completed our combination with Rowan Companies Limited (formerly named Rowan Companies plc) ("Rowan") and effected a four-to-one share consolidation (being a reverse stock split under English law or the "Reverse Stock Split") and changed our name to Ensco Rowan plc. On July 30, 2019, we changed our name to Valaris plc. All share and per-share amounts in these financial statements reflect the Reverse Stock Split.

We prepared the accompanying condensed consolidated financial statements of ~~Ensco~~Valaris plc and subsidiaries (the "Company," ~~"Ensco,~~"Valaris," "our," "we" or "us") in accordance with accounting principles generally accepted in the United States of America ("GAAP"), pursuant to the rules and regulations of the Securities and Exchange Commission (the "SEC") included in the instructions to Form 10-Q and Article 10 of Regulation S-X. The financial information included in this report is unaudited but, in our opinion, includes all adjustments (consisting of normal recurring adjustments) that are necessary for a fair presentation of our financial position, results of operations and cash flows for the interim periods presented. The December 31, ~~2016~~2019 condensed consolidated balance sheet data ~~were~~was derived from our ~~2016~~2019 audited consolidated financial statements but dodoes not include all disclosures required by GAAP. The preparation of our condensed consolidated financial statements 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.

The financial data for the ~~three-month~~three and ~~nine-month periods~~six months ended ~~September~~June 30, ~~2017~~2020 and ~~2016~~2019 included herein have been subjected to a limited review by KPMG LLP, our independent registered public accounting firm. The accompanying independent registered public accounting firm's review report is not a report within the meaning of Sections 7 and 11 of the Securities Act, and the independent registered public accounting firm's liability under Section 11 does not extend to it.

Results of operations for the ~~three-month~~three and ~~nine-month periods~~six months ended ~~September~~June 30, ~~2017~~2020 are not necessarily indicative of the results of operations that will be realized for the year ending December 31, ~~2017~~.2020. We recommend these condensed consolidated financial statements be read in conjunction with our annual report on Form 10-K for the year ended December 31, ~~2016~~2019, filed with the SEC on February ~~28, 2017 and our quarterly reports on Form 10-Q filed~~21, 2020.

Going Concern

Following several years of market volatility beginning with oil price declines in 2014, as we entered 2020, we expected that volatility to continue over the near-term with the ~~SEC~~expectation that long-term oil prices would remain at levels sufficient to support a continued gradual recovery in the demand for offshore drilling services. We were focused on opportunities to put our rigs to work, manage liquidity, extend our financial runway, and reduce debt as we sought to navigate the extended market downturn and improve our balance sheet. Recognizing our ability to maintain a sufficient level of liquidity to meet our financial obligations depended upon our future performance, which is subject to general economic conditions, industry cycles and financial, business and other factors affecting our operations, many of which are beyond our control, we had significant financial flexibility within our capital structure to support our liability management efforts. Since then, the combined effects of the global COVID-19 pandemic, the significant decline in the demand for oil and the substantial surplus in the supply of oil have resulted in significantly reduced demand and day rates for offshore drilling provided by the Company and increased uncertainty regarding long-term market conditions.

The development of COVID-19 into a pandemic, the actions taken to mitigate the spread of COVID-19 by governmental authorities around the world and the risk of infection have altered, and are expected to continue to alter, policies of governments and companies and behaviors of customers around the world in ways that we anticipate will have a significant negative effect on oil consumption, with measures such as government-imposed or voluntary social

distancing and quarantining, reduced travel and remote work policies. At the start of the COVID-19 pandemic and related mitigation efforts, disagreements developed within OPEC+ as certain oil producers competing for market share initiated efforts to aggressively increase oil production, thereby increasing inventory levels even further. The convergence of these events resulted in a significant decline in the demand for oil and a substantial surplus in the supply of oil in the first half of 2020, leading oil producers to cancel or shorten the duration of many of the Company's 2020 drilling contracts, cancel future drilling programs and seek pricing and other contract concessions. As a result, the Company's earnings, cash flows and rig values were significantly, adversely impacted in the six months ended June 30, 2020. Although OPEC+ agreed in April ~~27, 2017~~2020 to reduce production, the continued decreased demand for crude oil and historically low oil prices are expected to continue for the foreseeable future. Such challenging conditions had, and are expected to continue to have, a significant impact on our business, operations and financial condition in various respects, including substantially reducing demand for our services.

These events have had a meaningful adverse impact on our current and expected liquidity position and financial runway. The Company did not make interest payments due in June and July ~~27, 2017.~~2020 on the Defaulted Notes (as defined herein). The June 2020 missed interest payments represent a default or event of default under the Defaulted Notes. An aggregate of approximately $2.1 billion is outstanding under the Defaulted Notes. Pursuant to the Second A&R Waiver (as defined herein), the lenders under our revolving credit facility have waived certain defaults and events of default under the revolving credit facility, including in relation to the non-payment of interest on the Defaulted Notes, and pursuant to the Forbearance Agreement (as defined herein), certain holders of our senior notes have agreed to forbear from the exercise of certain rights and remedies that they have with respect to certain specified defaults and events of defaults (including cross-defaults). The Second A&R Waiver and the Forbearance Agreement each terminate automatically on August 3, 2020. See “Note 10 - Debt” for a description of the terms of the Second A&R Waiver and the Forbearance Agreement.

Based on our evaluation of the circumstances described above, coupled with significant asset impairments (See Note 6 - "Property and Equipment") and substantial borrowings on our revolving credit facility, we determined that there was a significant level of uncertainty as to whether we will be in compliance over the next 12 months with covenants to maintain specified financial and guarantee coverage ratios, including a total debt to total capitalization ratio that is less than or equal to 60%. If we exceed the total debt to total capitalization covenant in our revolving credit facility, further borrowings under the revolving credit facility would not be permitted, absent a waiver in respect of the resulting event of default from the breach of the total debt to total capitalization covenant, and all outstanding borrowings could become immediately due and payable by actions of lenders holding a majority of the commitments under the revolving credit facility. Any such acceleration would trigger a cross-acceleration event of default with respect to approximately $2.1 billion outstanding under the Defaulted Notes. In addition to the approximately $58.5 million of missed interest payments on the Defaulted Notes discussed above, there is substantial uncertainty whether we will pay $79.2 million of interest on other series of outstanding notes on or prior to August 15, 2020 together with the $122.9 million outstanding principal amount of our 6.875% Senior Notes due on August 15, 2020. Therefore, due to the uncertainty as to our ability to comply with our debt covenants over the next 12 months and the related potential for cross-covenant defaults, we concluded that there is a substantial doubt regarding our ability to continue as a going concern within one year after the date that the financial statements are issued.

We are actively pursuing a variety of transactions and cost-cutting measures, including, but not limited to, further reductions in corporate overhead and discretionary expenditures, another potential waiver from lenders under, or amendment to, our revolving credit facility, another potential forbearance from holders of our senior notes, further reductions in capital expenditures and increased focus on operational efficiencies. We are also actively negotiating with certain holders of our senior notes and the lenders under our revolving credit facility regarding a comprehensive restructuring of our indebtedness. While there can be no assurances as to ultimate timing, we expect our restructuring is likely to be implemented imminently through cases under Chapter 11 of the U.S. Bankruptcy Code and that our restructuring may result in cancellation of existing equity interests and little or no recovery to existing shareholders.

In light of the foregoing, the unaudited condensed consolidated financial statements included herein were prepared on a going concern basis of accounting, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The consolidated financial statements do not reflect any adjustments that

~~Operating Revenues and Expenses~~

might be necessary should we be unable to continue as a going concern. We will continue to evaluate our going concern assessment in connection with future periodic reports.

During the nine-month period ended September 30, 2016, 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 and $20.0 million for the lump-sum consideration received in settlement of the ENSCO 8503 customer's remaining obligations under the contract. The ENSCO DS-9 contract was terminated for convenience by the customer in July 2015, whereby our customer was obligated to pay us monthly termination fees for two years under the termination provisions of the contract. The ENSCO 8503 contract was originally scheduled to expire in August 2017.

New Accounting Pronouncements

Recently adopted accounting standards

Credit Losses - In ~~August 2017,~~June 2016, the Financial Accounting Standards Board ~~(the "FASB"~~("FASB")issued ~~Update 2017-12,~~ ~~Derivatives and Hedging~~ASU 2016-13, Financial Instruments - Credit Losses (Topic ~~815)~~326): ~~Targeted Improvements to Accounting for Hedging Activities~~ Measurement of Credit Losses on Financial Instruments ("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.

~~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”~~2016-13"), which requires ~~entities~~companies to ~~recognize the income tax consequences~~measure credit losses of ~~an intra-entity transfer of an asset other than inventory when the transaction occurs as opposed to deferring tax consequences~~financial instruments, including customer accounts receivable, utilizing a methodology that reflects expected credit losses 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 recognitionrequires consideration of a ~~cumulative-effect reduction in retained earnings~~broader range of ~~$14.1 million on our condensed consolidated balance sheet as of January 1, 2017. We do not expect a material impact~~reasonable and supportable information to ~~our 2017 operating results as a result of the adoption of Update 2016-16.~~

~~In March 2016, the FASB issued Accounting Standards Update 2016-09,~~ ~~Compensation — Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting~~ ("Update 2016-09"), which simplifies several aspects of accounting for share-based payment transactions including the income tax consequences, classification of awards as either equity or liabilities and classification on the statement of cash flows. We adopted Update 2016-09 effective January 1, 2017. Our adoption of Update 2016-09 did not result in any cumulative effect on retained earnings and no adjustments have been made to prior periods. The new standard will cause volatility in our effective tax rates primarily due to the new requirement to recognize additional tax benefits or expenses in earnings related to the vesting or settlement of employee share-based awards, rather than in additional paid-in capital, during the period in which they occur. Furthermore, forfeitures are now recorded as they occur as opposed to estimating an allowance for future forfeitures.

~~During 2014, the FASB issued Accounting Standards Update 2014-09,~~ ~~Revenue from Contracts with Customers (Topic 606)~~ ("Update 2014-09"), which requires an entity 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.inform credit loss estimates. Subsequent to the issuance of Update ~~2014-09,~~2016-13, the FASB issued several additional Accounting ~~Standards~~Standard Updates to clarify implementation guidance, provide narrow-scope improvements and provide additional disclosure guidance. We adopted Update ~~2014-09 will replace most existing revenue recognition guidance~~2016-13 effective January 1, 2020 with no material impact to our financial statements upon adoption as our previously estimated reserves were in ~~U.S. GAAP and may~~line with expected credit losses calculated under Update 2016-13.

Accounting pronouncements to be adopted ~~using a retrospective, modified retrospective or prospective with a cumulative catch-up approach. Due to the significant interaction between Update 2014-09 and Accounting Standards Update 2016-02,~~ ~~Leases (Topic 842): Amendments to the FASB Accounting Standards Codification~~ ("Update 2016-02"), we expect to adopt Update 2014-09 and Update 2016-02 concurrently with an effective date of January 1, 2018. We expect to apply the modified retrospective approach to our adoption. We are currently evaluating the effect that Update 2014-09 and Update 2016-02 will have on our consolidated financial statements and related disclosures.

Income Taxes - In ~~February 2016,~~December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes ("Update ~~2016-02,~~2019-12"), which ~~requires an entity~~removes certain exceptions for investments, intraperiod allocations and interim tax calculations and adds guidance to ~~recognize lease assets and lease liabilities on~~reduce complexity in accounting for income taxes. We will be required to adopt the ~~balance sheet and to disclose key qualitative and quantitative information about the entity's leasing arrangements. This update is effective for~~amended guidance in annual and interim periods beginning after December 15, ~~2018,~~2020, with early adoption permitted. AThe various amendments in Update 2019-12 are applied on a retrospective basis, modified retrospective ~~approach is required. During our evaluation of Update 2016-02, we have concluded that our drilling contracts contain a lease component,~~basis and upon adoption, we will be required to separately recognize revenues associated with the lease of our drilling rigs and the provision of contract drilling services. Due to the significant interaction between Update 2016-02 and Update 2014-09, we expect to adopt both updates concurrently with an effective date of January 1, 2018. Adoption will result in increased disclosure of the nature of our leasing arrangements and may result in variability in our revenue recognition patterns relative to current U.S. GAAP basedprospective basis, depending on the provisions in each of our drilling contracts. With respect to leases whereby we are the lessee, we expect to recognize lease liabilities and offsetting "right of use" assets ranging from approximately $70 million to $90 million.amendment. We are ~~currently~~in the process of evaluating the ~~other impacts that Update 2016-02 and Update 2014-09~~impact this amendment will have on our consolidated financial ~~statements~~statements.

Defined Benefit Plans - In August 2018, the FASB issued ASU No. 2018-14, Compensation – Retirement Benefits – Defined Benefit Plans – General (Subtopic 715-20): Disclosure Framework – Changes to the Disclosure Requirements for Defined Benefit Plans ("Update 2018-14"), which modifies the disclosure requirements for employers that sponsor defined benefit pension or other post-retirement plans. We will be required to adopt the amended guidance in annual and interim reports beginning January 1, 2021, with early adoption permitted. Adoption is required to be applied on a retrospective basis to all periods presented. We will adopt the new standard effective January 1, 2021 and do not expect the adoption of Update 2018-14 to have a material impact on our consolidated financial statements.

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. We are in the process of evaluating the impact this amendment will have on our consolidated financial statements.

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.

Note 2 -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 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 drilling service provided under each drilling contract is a single performance obligation satisfied over time and comprised of a series of 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 ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606), and have not disclosed the variable consideration related ~~disclosures.~~to our estimated future day rate revenues. The remaining duration of our drilling contracts based on those in place as of June 30, 2020 was between approximately one month and four 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 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 basis 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 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.

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.

~~Note 2 - Atwood Merger~~

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.

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 or capital upgrades.

Contract assets and liabilities are presented net on our consolidated balance sheet 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 condensed consolidated balance sheets.

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



	June 30, 2020		December 31, 2019
Current contract assets	$	6.6	$	3.5
Noncurrent contract assets	$	.5	$	—
Current contract liabilities (deferred revenue)	$	31.5	$	30.0
Noncurrent contract liabilities (deferred revenue)	$	11.2	$	9.7

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



	Contract Assets			Contract Liabilities
Balance as of December 31, 2019	$	3.5		$	39.7
Revenue recognized in advance of right to bill customer	4.6			—
Increase due to cash received	—			23.5
Decrease due to amortization of deferred revenue that was included in the beginning contract liability balance	—			(17.5		)
Decrease due to amortization of deferred revenue that was added during the period	—			(3.0		)
Decrease due to transfer to receivables during the period	(1.0		)	—
Balance as of June 30, 2020	$	7.1		$	42.7

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 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 condensed consolidated balance sheets and totaled $20.8 million and $19.7 million as of June 30, 2020 and December 31, 2019, respectively. During the three and six months ended June 30, 2020, amortization of such costs totaled $17.5 million and $28.9 million, respectively. During the three and six months ended June 30, 2019, amortization of such costs totaled $14.7 million and $21.1 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 condensed consolidated balance sheets and totaled $9.5 million and $10.8 million as of June 30, 2020 and December 31, 2019, respectively. During the three and six months ended June 30, 2020, amortization of such costs totaled $2.6 million and $5.7 million, respectively. During the three and six months ended June 30, 2019, amortization of such costs totaled $2.8 million and $5.7 million, respectively.

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. Expected future amortization of our contract liabilities and deferred costs recorded as of June 30, 2020 is set forth in the table below (in millions):



	Remaining 2020		2021		2022		2023 and Thereafter		Total
Amortization of contract liabilities	$	21.6	$	17.2	$	3.9	$	—	$	42.7
Amortization of deferred costs	$	15.7	$	11.1	$	3.2	$	.3	$	30.3

Note 3 -Rowan Transaction

On ~~May 29, 2017, we entered into an Agreement and Plan of Merger~~April 11, 2019 (the ~~“Merger Agreement”) with Atwood Oceanics, Inc. (“Atwood”) and Echo Merger Sub, LLC, our wholly-owned subsidiary, and on October 6, 2017 (the "Merger~~"Transaction Date"), we completed our ~~acquisition of Atwood~~combination with Rowan pursuant to the ~~Merger~~Transaction Agreement (the ~~“Merger”~~"Rowan Transaction"). ~~Atwood’s financial results will be included in our consolidated results beginning on the Merger Date.~~

The Merger is expected to strengthen our position as the leader in offshore drilling across a wide range of water depths around the world. The Merger significantly enhances the capabilities of our rig fleet and improves our ability to meet future customer demand with the highest-specification assets.

~~Consideration~~

As a result of the 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 Merger consisted of 134.1 million Class A ordinary shares with an aggregate value of $782.0 million.

~~Assets Acquired and Liabilities Assumed~~

Assets acquired and liabilities assumed in the ~~Merger will be~~Rowan Transaction were recorded at their estimated fair values as of the ~~Merger~~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. ~~We have not finalized the~~As of March 31, 2020, we completed our fair ~~values~~value assessments of assets acquired and liabilities ~~assumed; therefore, the fair value estimates set forth below are subject to adjustment during a one year measurement period subsequent to the Merger Date. The estimated fair values of certain assets~~assumed.

Assets Acquired and liabilities including inventory, long-lived assets and contingencies require judgments and assumptions that increase the likelihood that adjustments may be made to these estimates during the measurement period, and those adjustments could be material.Liabilities Assumed

The provisional amounts for assets acquired and liabilities assumed ~~are based on preliminary estimates of their fair values~~ as of the ~~Merger~~Transaction Date and ~~are~~respective measurement period adjustments were as follows (in millions):


	Estimated Fair Value			Amounts Recognized as of Transaction Date			Measurement Period Adjustments ⁽¹⁾			Estimated Fair Value
Assets:
Cash and cash equivalents⁽¹⁾	$	445.4		$	931.9		$	—		$	931.9
Accounts receivable⁽²⁾	59.4			207.1			(6.9		)	200.2
Other current assets	115.9			101.6			(2.6		)	99.0
Long-term notes receivable from ARO				454.5			—			454.5
Investment in ARO				138.8			2.5			141.3
Property and equipment	1,776.1			2,989.8			(26.0		)	2,963.8
Other assets	26.0			41.7			1.1			42.8
Liabilities:
Debt⁽¹⁾	1,305.9
Accounts payable and accrued liabilities				259.4			15.7			275.1
Current portion of long-term debt				203.2			—			203.2
Long-term debt				1,910.9			—			1,910.9
Other liabilities	167.1			376.3			34.5			410.8
Net assets acquired	949.8			2,115.6			(82.1		)	2,033.5
Less: merger consideration	(782.0		)
Bargain purchase gain	$	167.8
Less: Merger consideration				(1,402.8		)	—			(1,402.8		)
Estimated bargain purchase gain				$	712.8		$	(82.1	)	$	630.7

⁽¹⁾~~Upon closing of the 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.~~

⁽¹⁾

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 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 adjustments recorded resulted in a $6.3 million decline to bargain purchase gain during the first quarter of 2020 and are included in other, net, in our condensed consolidated statements of operations for the six monthsendedJune 30, 2020.


⁽²⁾	Gross contractual amounts receivable totaled $208.3 million as of the Transaction Date.

⁽²⁾~~Gross contractual amounts receivable totaled $61.8 million as of the Merger Date.~~

Bargain Purchase Gain

The estimated fair values assigned to assets acquired net of liabilities assumed exceeded the consideration transferred, resulting in a bargain purchase gain primarily due to depressed offshore drilling company valuations. Market capitalizations across the offshore drilling industry have 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~~$33.92 to ~~$5.83~~$15.88 between the last trading day prior to the announcement of the ~~Merger~~Rowan Transaction and the ~~Merger~~Transaction Date.

Intangible Assets and Liabilities

We recorded intangible assets and liabilities of $16.2 million and $2.1 million, respectively, representing the estimated fair value of Rowan's firm contracts in place at the Transaction Date with favorable or unfavorable contract terms compared to then-market day rates for comparable drilling rigs.

As a result of a price concession negotiated following the onset of the COVID-19 pandemic, on one of our bare boat charter agreements for a rig leased to our 50/50 joint venture with Saudi Aramco ("ARO"), we recognized a $5.7 million impairment to the related contract intangible during the quarter ending June 30, 2020. The ~~estimated gain~~impairment was included in loss on impairment in our condensed consolidated statements of operations for the three and six months ended June 30, 2020.

Amortization of the intangible assets and liabilities resulted in a net reduction of operating revenues of $0.6 million and $1.9 million for the three and six months ended June 30, 2020. The remaining balance of intangible assets and liabilities of $3.8 million and $0.9 million, respectively, was included in other assets and other liabilities, respectively, on our condensed consolidated balance sheet as of June 30, 2020. These balances will be ~~reflected~~amortized to operating revenues over the respective remaining contract terms on a straight-line basis. As of June 30, 2020, the remaining term of the underlying contracts is approximately 1.5 years. Amortization of these intangibles is expected to result in ~~other,~~a reduction to revenue of $0.9 millionand$2.0 million for the remainder of 2020 and 2021, respectively.

Uncertain Tax Positions

Uncertain tax positions assumed in a business combination are measured at the largest amount of the 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 the Transaction Date, Rowan had previously recognized net inliabilities for uncertain tax positions totaling $50.4 million.

~~Merger-Related Costs~~Transaction-related costs

~~Merger-related~~Transaction-related costs were expensed as incurred and consisted of various advisory, legal, accounting, valuation and other professional or consulting fees totaling ~~$3.8~~$15.0 million and ~~$8.0~~$17.8 million ~~during~~for the ~~three-month~~three and ~~nine-month periods~~six months ended ~~September~~June 30, ~~2017, respectively.~~2019. These costs were included in general and administrative expense in our condensed consolidated statement of operations.

Revenue and Earnings of Rowan

Our condensed consolidated statements of ~~operations. Upon closing~~operations for the three and six months endedJune 30, 2019 include revenues of $147.2 million and a net loss of $95.3 million associated with Rowan's operations from the ~~Merger, we incurred additional Merger-related costs of $11.8 million.~~Transaction Date through June 30, 2019.

Unaudited Pro Forma Impact of the ~~Merger~~Rowan Transaction

The following unaudited supplemental pro forma results present consolidated information as if the ~~Merger~~Rowan Transaction was completed on January 1, ~~2016.~~2019. The pro forma results include, among others, (i) the amortization associated with acquired intangible assets and liabilities, (ii) a reduction in depreciation expense for adjustments to property and equipment, (iii) 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 that may result directly from the ~~Merger.~~Rowan Transaction.



(in millions, except per share amounts)	Three Months Ended June 30, 2019			Six Months Ended June 30, 2019
Revenues	$	599.0		$	1,179.5
Net loss	$	(271.3	)	$	(591.8	)
Loss per share - basic and diluted	$	(1.38	)	$	(3.02	)


⁽¹⁾	Pro forma net loss and loss per share were adjusted to exclude an aggregate $71.5 million and $80.8 million of transaction-related and integration costs incurred during the three and six months ended June 30, 2019, respectively, and the estimated $712.8 million bargain purchase gain.

Note 4 - 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 Rowan and 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. ARO owns 7 jackup rigs and leases 9 rigs from us through bareboat charter arrangements (the "Lease Agreements") whereby substantially all operating costs are incurred by ARO. As of June 30, 2020, all 9 of the leased rigs were operating under three-year drilling contracts with Saudi Aramco. The seven rigs owned by ARO, previously purchased from Rowan and Saudi Aramco, are currently operating under contracts with Saudi Aramco for an aggregate 15 years, renewed and re-priced every three years, provided that the rigs meet the technical and operational requirements of Saudi Aramco.

Valaris and Saudi Aramco have agreed to take all steps necessary to ensure that ARO purchases at least 20 newbuild jackup rigs ratably over an approximate 10 -year period. In January 2020, ARO ordered the first two newbuild jackups, each with a shipyard price of $176 million, for delivery scheduled in 2022. The 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. 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 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 seconded to ARO became employees of ARO.

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):


(in millions, except per share amounts)	Three Months Ended September 30,					Nine Months Ended September 30,
											Three Months Ended			Six Months Ended		April 11 - June 30, 2019
	2017			2016		2017			2016		June 30, 2020
Revenues	$	561.2		$	732.2	$	1,769.8		$	2,960.8	$	146.0		$	286.3	$	123.8
Operating expenses
Contract drilling (exclusive of depreciation)											112.5			220.8		78.9
Depreciation											13.3			26.3		12.4
General and administrative											7.1			15.4		5.3
Operating income											13.1			23.8		27.2
Other expense, net											6.7			13.3		8.7
Provision (Benefit) for income taxes											(.2		)	.7		1.7
Net income	(14.3		)	136.0		(24.0		)	1,196.9		$	6.6		$	9.8	$	16.8
Earnings per share - basic and diluted	(0.03		)	0.31		(0.06		)	2.95



	June 30, 2020		December 31, 2019
Current assets	$	349.2	$	407.2
Non-current assets	924.1		874.8
Total assets	$	1,273.3	$	1,282.0

Current liabilities	$	206.8	$	183.2
Non-current liabilities	973.4		1,015.5
Total liabilities	$	1,180.2	$	1,198.7

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 of ARO in our condensed 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.

As a result of the Rowan Transaction, we recorded our equity method investment in ARO at its estimated fair value on the Transaction Date. Additionally, we computed the difference between the fair value of ARO's net assets and the carrying value of those net assets in ARO's GAAP financial statements ("basis differences"). The 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. The 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 of ARO in our condensed 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):



	Three Months Ended			Six Months Ended			April 11 - June 30, 2019
	June 30, 2020						April 11 - June 30, 2019
50% interest in ARO net income	$	3.3		$	4.9		$	8.4
Amortization of basis differences	(8.5		)	(16.4		)	(7.8		)
Equity in earnings of ARO	$	(5.2	)	$	(11.5	)	$	.6

Related-Party Transactions

Revenues recognized by us related to the Lease Agreements, Transition Services Agreement and Secondment Agreement are as follows (in millions):



	Three Months Ended		Six Months Ended		April 11 - June 30, 2019
	June 30, 2020				April 11 - June 30, 2019
Lease revenue	$	19.9	$	41.4	$	18.3
Secondment and Transition Services revenue	.2		22.0		20.8
Total revenue from ARO ⁽¹⁾	$	20.1	$	63.4	$	39.1


⁽¹⁾	All of the revenues presented above are included in our Other segment in our segment disclosures. See "Note 14 - Segment Information" for additional information.

Amounts receivable from ARO related to the items above totaled $8.6 million and $21.8 million as of June 30, 2020 and December 31, 2019, respectively, and are included in accounts receivable, net, on our condensed consolidated balance sheets.

Additionally, as of December 31, 2019, we had a receivable from ARO of $14.2 million related to an agreement between us and ARO, pursuant to which ARO would reimburse us for certain capital expenditures related to the shipyard upgrade projects for the VALARIS JU-147 and VALARIS JU-148. Such amount was received in the first quarter of 2020.

We had no amounts payable to ARO as of June 30, 2020 and $0.7 million as of December 31, 2019.

During 2017 and 2018, Rowan contributed cash to ARO in exchange for 10-year shareholder notes receivable at a stated interest rate of LIBOR plus two percent. As of June 30, 2020 and December 31, 2019, the carrying amount of the long-term notes receivable from ARO was $452.8 million and $452.9 million, respectively. The Shareholders’ Agreement prohibits the sale or transfer of the shareholder note to a third party, except in certain limited circumstances. Interest is recognized as interest income in our condensed consolidated statement of operations and totaled $4.6 million and $9.2 million for the three and six months ended June 30, 2020, respectively and $5.1 million for the period from April 11 through June 30, 2019. As of June 30, 2020, our interest receivable from ARO was $9.2 million, which is included in Other current assets on our condensed consolidated balance sheet. There was no interest receivable from ARO as of December 31, 2019.

Maximum Exposure to Loss

The following summarizes the total assets and liabilities as reflected in our condensed consolidated balance sheet 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 outstanding balance on our shareholder notes receivable, and (3) other receivables and contract assets related to services provided to ARO, partially offset by payables for services received.



	June 30, 2020		December 31, 2019
Total assets	$	593.7	$	623.5
Less: total liabilities	—		.7
Maximum exposure to loss	$	593.7	$	622.8

Note 35 -Fair Value Measurements

The following fair value hierarchy table categorizes information regarding our financial assets and liabilities measured at fair value on a recurring basis (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 June 30, 2020
Supplemental executive retirement plan assets	$	22.3	$	—		$	—	$	22.3
Total financial assets	22.3		—			—		22.3
Derivatives, net	—		(1.0		)	—		(1.0		)
Total financial liabilities	$	—	$	(1.0	)	$	—	$	(1.0	)
As of December 31, 2019
Supplemental executive retirement plan assets	$	26.0	$	—		$	—	$	26.0
Derivatives, net	—		5.4			—		5.4
Total financial assets	$	26.0	$	5.4		$	—	$	31.4

Quoted Prices in Active Markets for Identical Assets
(Level 1)

Significant Other Observable Inputs
(Level 2)

Significant Unobservable Inputs
(Level 3)
Total
As of September 30, 2017

Supplemental executive retirement plan assets $ 30.0
$ —
$ —
$ 30.0
Derivatives, net —
6.0
—
6.0
Total financial assets $ 30.0
$ 6.0
$ —
$ 36.0

As of December 31, 2016

Supplemental executive retirement plan assets $ 27.7
$ —
$ —
$ 27.7
Total financial assets $ 27.7
$ —
$ —
$ 27.7
Derivatives, net $ —
$ (8.8 ) $ —
$ (8.8 )
Total financial liabilities $ —
$ (8.8 ) $ —
$ (8.8 )

Supplemental Executive Retirement Plan Assets

Our Valaris supplemental executive retirement plans (the "SERP") are non-qualified plans that ~~provide~~provided eligible employees an opportunity to defer a portion of their compensation for use after retirement. The SERPs were 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~~are marketable securities measured at fair value on a recurring basis using Level 1 inputs and were included in other assets, net, on our ~~condensed~~ consolidated balance ~~sheets.~~sheets as of June 30, 2020 and December 31, 2019. The fair value ~~measurement~~measurements of assets held in the SERP ~~was~~were based on quoted market prices.

Derivatives

Our derivatives were measured at fair value on a recurring basis using Level 2 inputs. See ~~"Note 4~~"Note 8 - 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 ~~measurement~~measurements of our derivatives ~~was~~were based on market prices that are generally observable for similar assets or liabilities at ~~commonly-quoted~~commonly quoted intervals.

Other Financial Instruments

The carrying values and estimated fair values of our ~~long-term~~ debt instruments were as follows (in millions):



	June 30, 2020				December 31, 2019
	Carrying Value		Estimated Fair Value		Carrying Value		Estimated Fair Value
6.875% Senior notes due 2020	$	123.4	$	9.7	$	124.8	$	117.3
4.70% Senior notes due 2021	100.5		7.1		113.2		95.5
4.875% Senior notes due 2022	603.3		69.2		599.2		460.5
3.00% Exchangeable senior notes due 2024⁽¹⁾	716.2		124.0		699.0		607.4
4.50% Senior notes due 2024	302.1		26.3		302.0		167.2
4.75% Senior notes due 2024	280.8		33.5		276.5		201.4
8.00% Senior notes due 2024	295.4		19.4		295.7		181.7
5.20% Senior notes due 2025	331.9		28.1		331.7		186.7
7.375% Senior notes due 2025	331.4		37.2		329.2		218.6
7.75% Senior notes due 2026	988.2		82.6		987.1		575.1
7.20% Debentures due 2027	111.7		15.7		111.7		70.0
7.875% Senior notes due 2040	372.3		22.1		373.3		153.5
5.40% Senior notes due 2042	263.7		42.3		262.8		194.4
5.75% Senior notes due 2044	974.4		76.4		973.3		450.0
5.85% Senior notes due 2044	269.5		44.6		268.8		194.8
Amounts borrowed under credit facility⁽²⁾	545.5		551.0		—		—
Total debt	$	6,610.3	$	1,189.2	$	6,048.3	$	3,874.1
Less: current maturities	2,518.1		794.6		124.8		117.3
Total long-term debt	$	4,092.2	$	394.6	$	5,923.5	$	3,756.8

September 30,
2017 December 31,
2016
Carrying Value Estimated Fair Value Carrying Value Estimated Fair Value
8.50% Senior notes due 2019 $ 253.7
$ 252.3
$ 480.2
$ 485.0
6.875% Senior notes due 2020 480.3
465.2
735.9
727.5
4.70% Senior notes due 2021 266.9
264.6
674.4
658.9
3.00% Exchangeable senior notes due 2024⁽¹⁾
628.2
726.8
604.3
874.7
4.50% Senior notes due 2024 619.1
520.2
618.6
536.0
8.00% Senior notes due 2024 338.2
330.2
—
—
5.20% Senior notes due 2025 663.4
564.0
662.8
582.3
7.20% Debentures due 2027 149.2
139.2
149.2
138.7
7.875% Senior notes due 2040 377.1
256.6
378.3
270.6
5.75% Senior notes due 2044 971.6
731.9
970.8
728.0
Total $ 4,747.7
$ 4,251.0
$ 5,274.5
$ 5,001.7

⁽¹⁾

Our ~~exchangeable senior notes due~~ 2024 ~~(the "2024~~ Convertible ~~Notes")~~Notes were issued with a conversion feature. The 2024 Convertible Notes were separated into their liability and equity components on our condensed 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 ~~amount~~value of the 2024 Convertible Notes was ~~$833.5~~$839.9 million and ~~$830.1~~$838.3 million as of ~~September~~June 30, ~~2017~~2020 and December 31, ~~2016,~~2019, respectively.


⁽²⁾	Total outstanding borrowings under our credit facility are $551.0 million and are recorded net of $5.5 million of unamortized deferred financing cost on our condensed consolidated balance sheet. In addition, we have $37.8 million in letters of credit issued under our credit facility, leaving $1.0 billion of undrawn borrowing capacity at June 30, 2020.

The estimated fair values of our senior notes and debentures were determined using quoted market prices. The decline in the carrying value of long-term debt instruments from December 31, 2016 to September 30, 2017 is primarily due to the January 2017 debt exchange and debt repurchases as discussed in "Note 7 - Debt."

prices, which are level 1 inputs. The estimated fair values of our cash and cash equivalents, ~~short-term investments, receivables,~~accounts receivable, notes receivable, trade payables and other liabilities approximated their carrying values as of ~~September~~June 30, ~~2017~~2020 and December 31, ~~2016. Our short-term investments~~2019.

Note 6 -Property and Equipment

Property and equipment as of June 30, 2020 and December 31, 2019 consisted of the following (in millions):



	June 30, 2020		December 31, 2019
Drilling rigs and equipment	$	12,559.5	$	17,714.0
Work-in-progress	473.2		473.6
Other	187.6		206.2
	$	13,220.3	$	18,393.8

Impairment of Long-Lived Assets

During the three and six months ended June 30, 2020, we recorded pre-tax, non-cash impairments with respect to certain floaters, jackups and spare equipment of $832.3 million and $3.6 billion, respectively, which were included in loss on impairment in our condensed consolidated statement of operations for the respective periods.

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 the second quarter, 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 ~~deposits~~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.

During the first quarter, the COVID-19 global 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 customer's capital expenditure plans in the first quarter resulted in further deterioration in our forecasted day rates and utilization for the remainder of 2020 and beyond. As a result, we concluded that a triggering event had occurred and we performed a fleet-wide recoverability test. We determined that our estimated undiscounted cash flows were not sufficient to recover the carrying values of certain rigs and concluded such were impaired as of March 31, 2020.

Based on the asset impairment analysis performed as of March 31, 2020, we recorded a pre-tax, non-cash loss on impairment in the first quarter with ~~initial maturities~~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 scrap value. 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.

Assets held-for-sale

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. 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 reducing holding costs by selling or disposing of older, 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.

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.

During the second quarter of 2020, we began marketing the VALARIS 8500, VALARIS 8501, VALARIS 8502, VALARIS DS-3, VALARIS DS-5, VALARIS DS-6 and VALARIS JU-105. We concluded that the rigs met the held-for-sale criteria during the second quarter of 2020 and their carrying value was reduced to fair value, less costs to sell, based on their estimated sales price. We recorded a pre-tax, non-cash loss on impairment totaling $15.0 million, which was included in loss on impairment in our condensed consolidated statement of operations for the three and six months ended June 30, 2020. In July 2020, we completed the sale of all of these rigs, except VALARIS DS-6, VALARIS 8502 and VALARIS JU-105.

Our 7 held-for-sale rigs had a remaining aggregate carrying value of $20.9 million and are included in other assets, net, on our condensed consolidated balance sheet as of June 30, 2020.

Note 7 -Pension and Other Post-retirement Benefits

We have defined-benefit pension plans and a retiree medical plan that provides post-retirement health and life insurance benefits.

The components of net periodic pension and retiree medical cost were as follows (in millions):



	Three Months Ended			Six Months Ended			April 11 - June 30, 2019
	June 30, 2020						April 11 - June 30, 2019
Service cost ⁽¹⁾	$	.7		$	1.3		$	.4
Interest cost ⁽²⁾	6.4			12.9			6.5
Expected return on plan assets ⁽²⁾	(9.5		)	(19.0		)	(8.2		)
Net periodic pension and retiree medical cost (income)	$	(2.4	)	$	(4.8	)	$	(1.3	)


⁽¹⁾	Included in contract drilling and general and administrative expense in our condensed consolidated statements of operations.


⁽²⁾	Included in other, net, in our condensed consolidated statements of operations.

During the six months ended June 30, 2020, we contributed $10.6 million to our pension and other post-retirement benefit plans and we do not expect to make additional contributions to such plans for the remainder of 2020. Approximately $21.4 million of anticipated payments have been deferred to January 1, 2021 as a result of relief provided

under the U.S. Cares Act. These amounts represent the minimum contributions we are required to make under relevant statutes. We do not expect to make contributions in excess of ~~three months but less than one year as of each respective balance sheet date.~~the minimum required amounts.

Note 48 -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 ~~foreign currency forward contracts~~derivatives to reduce our exposure to various market risks, primarily foreign currency exchange rate risk.

All derivatives were recorded on our condensed consolidated balance sheets at fair value. Derivatives subject to legally enforceable master netting agreements were not offset inon our condensed consolidated balance sheets. Accounting for the gains and losses resulting from changes in ~~derivative~~the fair value of derivatives depends on the use of the derivative and whether it qualifies for hedge accounting. ~~Net~~ ~~assets~~As of ~~$6.0 million~~June 30, 2020 and ~~net liabilities~~ of ~~$8.8 million associated with our foreign currency forward contracts were included on~~December 31, 2019, our condensed consolidated balance sheets asincluded net foreign currency derivative liabilities of ~~September 30, 2017~~$1.0 million and ~~December 31, 2016~~,assets of $5.4 million, respectively. All of our ~~derivatives~~derivative instruments mature during the next ~~18 months~~.15 months. See ~~"Note 3~~ "Note 5- Fair Value Measurements" for additional information on the fair value measurement of our derivatives.

Derivatives recorded at fair value on our condensed consolidated balance sheets consisted of the following (in millions):


	Derivative Assets				Derivative Liabilities				Derivative Assets				Derivative Liabilities
	September 30, 2017		December 31, 2016		September 30, 2017		December 31, 2016		June 30, 2020		December 31, 2019		June 30, 2020		December 31, 2019
Derivatives Designated as Hedging Instruments
Foreign currency forward contracts - current⁽¹⁾	$	6.4	$	4.1	$	.7	$	11.4	$	1.1	$	4.2	$	4.0	$	.7
Foreign currency forward contracts - non-current⁽²⁾	.7		.2		.1		.8		.3		.8		.2		—
	7.1		4.3		.8		12.2		$	1.4	$	5.0	$	4.2	$	.7

Derivatives Not Designated as Hedging Instruments
Derivatives not Designated as Hedging Instruments
Foreign currency forward contracts - current⁽¹⁾	.8		.4		1.1		1.3		$	2.0	$	1.3	$	.2	$	.2
	.8		.4		1.1		1.3
Total	$	7.9	$	4.7	$	1.9	$	13.5	$	3.4	$	6.3	$	4.4	$	.9


⁽¹⁾	Derivative assets and liabilities ~~with~~that have maturity dates equal to or less than ~~twelve~~12 months from the respective balance sheet ~~date~~dates were included in other current assets and accrued liabilities and other, respectively, on our condensed consolidated balance sheets.


⁽²⁾	Derivative assets and liabilities ~~with~~that have maturity dates greater than ~~twelve~~12 months from the respective balance sheet ~~date~~dates were included in other assets ~~net,~~ and other liabilities, respectively, on our condensed consolidated balance sheets.

We utilize cash flow hedges to hedge forecasted foreign currency denominated transactions, primarily to reduce our exposure to foreign currency exchange rate risk associated with future expected contract drilling expenses and capital expenditures denominated in various currencies. As of ~~September~~June 30, ~~2017,~~2020, we had cash flow hedges outstanding to exchange an aggregate ~~$164.0~~$134.9 million for various foreign currencies, including ~~$74.4~~$74.7 million for British pounds, ~~$33.8~~$39.4 million for Australian dollars, ~~$23.3~~$9.2 million for euros ~~$20.3 million for Brazilian reals~~ and ~~$12.2~~$11.6 million for other currencies.

Gains and losses, net of tax, on derivatives designated as cash flow hedges included in our condensed consolidated statements of operations and comprehensive income (loss) ~~income~~ were as follows (in millions):

Three Months Ended ~~September~~June 30, ~~2017~~2020 and ~~2016~~2019

Gain (Loss) Recognized in Other Comprehensive (Loss) Income (Effective Portion)
(Loss) Gain Reclassified from Accumulated Other Comprehensive Income ("AOCI") into Income (Effective Portion)⁽¹⁾

Gain Recognized in Income on Derivatives (Ineffective Portion and Amount Excluded from Effectiveness Testing)⁽²⁾
2017 2016 2017 2016 2017 2016
Interest rate lock contracts⁽³⁾
$ —
$ —
$ (.1 ) $ (.1 ) $ —
$ —
Foreign currency forward contracts⁽⁴⁾
1.7
—
.2
(2.1 ) .3
.2
Total $ 1.7
$ —
$ .1
$ (2.2 ) $ .3
$ .2



	Gain (Loss) Recognized in Other Comprehensive Loss ("OCI") on Derivatives (Effective Portion)					(Gain) Loss Reclassified from ("AOCI") into Income(Effective Portion)⁽¹⁾
	2020		2019			2020			2019
Foreign currency forward contracts⁽²⁾	$	4.8	$	(1.6	)	$	(10.9	)	$	1.8

~~Nine~~Six Months Ended ~~September~~June 30, ~~2017~~2020 and ~~2016~~2019



	Loss Recognized in Other Comprehensive Loss ("OCI") on Derivatives (Effective Portion)						(Gain) Loss Reclassified from ("AOCI") into Income(Effective Portion)⁽¹⁾
	2020			2019			2020			2019
Interest rate lock contracts⁽³⁾	$	—		$	—		$	—		$	.1
Foreign currency forward contracts⁽⁴⁾	(8.1		)	(1.6		)	(11.0		)	3.3
Total	$	(8.1	)	$	(1.6	)	$	(11.0	)	$	3.4

Gain (Loss) Recognized in Other Comprehensive (Loss) Income (Effective Portion)
Loss Reclassified from AOCI into Income (Effective Portion)⁽¹⁾

(Loss) Gain Recognized in Income on Derivatives (Ineffective Portion and Amount Excluded from Effectiveness Testing)⁽²⁾
2017 2016 2017 2016 2017 2016
Interest rate lock contracts⁽³⁾
$ —
$ —
$ (.3 ) $ (.2 ) $ —
$ —
Foreign currency forward contracts⁽⁵⁾
7.7
(.6 ) (.8 ) (9.9 ) (.1 ) 2.1
Total $ 7.7
$ (.6 ) $ (1.1 ) $ (10.1 ) $ (.1 ) $ 2.1


⁽¹⁾	Changes in the ~~effective portion~~fair value of cash flow ~~hedge fair values~~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~~During the three months ended June 30, 2020, $1.6 million of losses were reclassified from AOCI into contract drilling expense and ~~losses recognized in income for ineffectiveness and amounts excluded~~$12.5 million of gains were reclassified from ~~effectiveness testing were included in other, net,~~AOCI into depreciation expense in our condensed consolidated ~~statements~~statement of operations. During the three months ended June 30, 2019, $2.0 million of losses were reclassified from AOCI into contract drilling expense and $200,000 of gains were reclassified from AOCI into depreciation expense in our condensed consolidated statement of operations.


⁽³⁾	Losses on interest rate lock derivatives reclassified from AOCI into income were included in interest expense, net, in our condensed consolidated statements of operations.

⁽⁴⁾

During the ~~three-month~~ ~~period~~six months ended ~~September~~June 30, ~~2017, there~~2020, $2.5 million of losses wereno ~~net amounts~~ reclassified from AOCI into contract drilling expense and ~~$200,000~~$13.5 million of gains were reclassified from AOCI into depreciation expense in our condensed consolidated statement of operations. During the ~~three-month~~ ~~period~~six months ended ~~September~~June 30, ~~2016~~, ~~$2.3~~2019, $3.7 million of losses were reclassified from AOCI into contract drilling expense and ~~$200,000~~$400,000 of gains were reclassified from AOCI into depreciation expense in our condensed consolidated statement of operations.

⁽⁵⁾

~~During the~~ ~~nine-month~~ ~~period ended~~ ~~September 30, 2017~~, ~~$1.4 million~~ of ~~losses~~ ~~were reclassified from AOCI into contract drilling expense and~~ ~~$600,000~~ of ~~gains~~ ~~were reclassified from AOCI into depreciation expense in our condensed consolidated statement of operations. During the~~ ~~nine-month~~ ~~period ended~~ ~~September 30, 2016, $10.5 million of~~ ~~losses~~ ~~were reclassified from AOCI into contract drilling expense and $600,000 of gains were reclassified from AOCI into depreciation expense in our condensed 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. We occasionally enter into derivatives that hedge the fair value of recognized foreign currency denominated assets or liabilities but 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 fair value of the underlying hedged items. As of ~~September~~June 30, ~~2017~~,2020, we ~~held~~did not have foreign currency exposure due to our outstanding derivatives not designated as hedging ~~instruments to exchange an aggregate~~ ~~$137.1 million~~ ~~for various foreign currencies, including~~ ~~$94.4 million~~ ~~for euros, $12.3 million for British pounds, $10.1 million for Brazilian reals, $7.7 million for Australian dollars and~~ ~~$12.6 million~~ ~~for other currencies.~~instruments.

Net gains of ~~$2.7~~$1.4 million and net losses of ~~$400,000~~$2.2 million associated with our derivatives not designated as hedging instruments were included in other, net, in our condensed consolidated statements of operations for the ~~three-month~~ ~~periods~~ three monthsended ~~September~~June 30, ~~2017~~2020 and ~~2016~~,2019, respectively. Net gains of ~~$8.9~~$1.3 million and ~~$500,000~~net losses of $5.3 million associated

with our derivatives not designated as hedging instruments were included in other, net, in our condensed consolidated statements of operations for the ~~nine-month~~ ~~periods~~six months ended ~~September~~June 30, ~~2017~~2020 and ~~2016~~,2019, respectively. ~~These gains and losses were largely offset by net foreign currency exchange gains and losses during the respective periods.~~

As of ~~September~~June 30, ~~2017~~,2020, the estimated amount of net ~~gains~~losses associated with ~~derivative instruments,~~derivatives, net of tax, that ~~would~~will be reclassified ~~into~~to earnings during the next ~~twelve~~12 months totaled ~~$3.3 million~~.$1.9 million.

~~Note 5 -~~ ~~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 condensed consolidated balance sheets, and net income attributable to noncontrolling interests is presented separately in our condensed consolidated statements of operations.

~~(Loss) income from continuing operations attributable to Ensco for the~~ ~~three-month and nine-month~~ ~~periods ended~~ ~~September 30, 2017~~ ~~and~~ ~~2016~~ ~~was as follows (in millions):~~

Three Months Ended
September 30, Nine Months Ended
September 30,
2017 2016 2017 2016
(Loss) income from continuing operations $ (28.0 ) $ 88.0
$ (96.7 ) $ 858.4
Loss (income) from continuing operations attributable to noncontrolling interests 2.8
(2.0 ) .5
(5.4 )
(Loss) income from continuing operations attributable to Ensco $ (25.2 ) $ 86.0
$ (96.2 ) $ 853.0

Note 69 - Earnings Per Share

We compute basic and diluted earnings per share ("EPS") in accordance with the two-class method. Net ~~(loss) income~~loss attributable to ~~Ensco~~Valaris used in our computations of basic and diluted EPS is 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 includes the effect of all potentially dilutive stock options and excludes non-vested shares. In the three and six months ended June 30, 2020 and 2019, 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) income~~loss from continuing operations attributable to ~~Ensco~~Valaris shares used in our basic and diluted EPS computations for the ~~three-month~~three and ~~nine-month~~ ~~periods~~six months ended ~~September~~June 30, ~~2017~~2020 and ~~2016~~2019 (in millions):



	Three Months Ended June 30,						Six Months Ended June 30,
	2020			2019			2020			2019
Income (loss) from continuing operations attributable to Valaris	$	(1,107.4	)	$	405.5		$	(4,113.7	)	$	215.1
Income from continuing operations allocated to non-vested share awards⁽¹⁾	—			(12.1		)	—			(6.3		)
Income (loss) from continuing operations attributable to Valaris shares	$	(1,107.4	)	$	393.4		$	(4,113.7	)	$	208.8

Three Months Ended
September 30, Nine Months Ended
September 30,
2017 2016 2017 2016
(Loss) income from continuing operations attributable to Ensco $ (25.2 ) $ 86.0
$ (96.2 ) $ 853.0
Income from continuing operations allocated to non-vested share awards⁽¹⁾
(.1 ) (1.8 ) (.3 ) (15.1 )
(Loss) income from continuing operations attributable to Ensco shares $ (25.3 ) $ 84.2
$ (96.5 ) $ 837.9


⁽¹⁾	Losses are not allocated to non-vested share awards. ~~Therefore, only dividends attributable~~Due to ~~our non-vested~~the net loss position, potentially dilutive share awards are ~~included in~~excluded from the ~~three-month~~computation of diluted EPS. There were no potentially dilutive share awards for the three and ~~nine-month periods~~six months ended ~~September~~June 30, ~~2017.~~2019.

~~Antidilutive~~Anti-dilutive share awards totaling ~~1.3 million and 1.2 million~~400,000 were excluded from the computation of diluted EPS for the ~~three-month~~three and ~~nine-month periods~~six months ended ~~September~~June 30, ~~2017~~2020, respectively. Anti-dilutive share awards totaling 400,000 and ~~2016,~~300,000 were excluded from the computation of diluted EPS for the three and six months ended June 30, 2019, respectively.

We have the option to settle our 2024 Convertible Notes in cash, shares or a combination thereof for the aggregate amount due upon conversion. 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 the remainder of 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 our denominator for the computation of diluted EPS using the treasury stock method. Our average share price did not exceed the exchange price during the ~~three-month or nine-month periods~~three and six months ended ~~September~~June 30, ~~2017.~~2020 and 2019.

Note 710 -Debt

Second A&R Waiver

On July 15, 2020, the Company, certain lenders party thereto, Citibank, N.A., as administrative agent (the “Agent”), and the other parties party thereto entered into a Second Amended and Restated Waiver to Fourth Amended and Restated Credit Agreement (the “Second A&R Waiver”), which amends, restates and replaces the Amended and Restated Waiver to Fourth Amended and Restated Credit Agreement, dated June 30, 2020 (the “A&R Waiver”), which was previously entered into by the Company, certain lenders party thereto, the Agent and the other parties thereto and which amended, restated and replaced the Waiver to Fourth Amended and Restated Credit Agreement, dated June 1,

~~Exchange Offers~~

2020, which was previously entered into by the Company, certain lenders party thereto, the Agent and the other parties party thereto (the “Initial Waiver”).

The Initial Waiver was entered into under the Company’s Fourth Amended and Restated Credit Agreement dated May 7, 2013 (as amended, the “revolving credit facility”) to waive any resulting default or event of default attributed to any failure by the Company or any of its subsidiaries to make all or any part of their required interest payments due (i) on June 1, 2020 with respect to the Company’s 4.875% Senior Notes due 2022 (the “2022 Notes”) and 5.40% Senior Notes due 2042 (the “2042 Notes”) (collectively, the “June 1 Interest Payments”) and (ii) on June 15, 2020 with respect to the Company’s 7.375% Senior Notes due 2025 (the “2025 Notes”) (the “June 15 Interest Payments” and together with the June 1 Interest Payments, the “June Interest Payments”). The A&R Waiver was entered into by the parties thereto to continue to waive any default or event of default addressed in the A&R Waiver as well as to also waive any default or event of default under the revolving credit facility resulting from any cross-defaults (the “June 1 Cross-Defaults”) under the 2022 Notes, 2042 Notes, 2025 Notes, the 4.75% Senior Notes due 2024 (the "2024 Notes") and the 5.85% Senior Notes due 2044 (the "2044 Notes" and, collectively, the “Defaulted Notes”) in respect of the failure to pay the June 1 Interest Payments.

The Second A&R Waiver was entered into to continue to waive any default or event of default under the revolving credit facility attributed to (i) the failure to make the June Interest Payments and (ii) the June 1 Cross-Defaults. Additionally, the Second A&R Waiver waived any default or event of default under the revolving credit facility attributed to (i) any failure by the Company or any of its subsidiaries to make all or any part of their required interest payments due on (a) July 15, 2020, with respect to the Company’s 2024 Notes and 2044 Notes, (b) July 31, 2020, with respect to the Company’s 8.00%Senior Notes due 2024 and with respect to a subsidiary of the Company’s 3.00% Exchangeable Notes due 2024 and (c) August 1, 2020, with respect to the Company’s 7.75% Senior Notes due 2025, (ii) any resulting cross-defaults under the Defaulted Notes in respect of the failure to pay the June Interest Payments and (iii) an additional waiver relating to a vendor payment.

The Second A&R Waiver will remain in effect until the earliest of (i) August 3, 2020, (ii) termination or invalidity of the Forbearance Agreement (as defined below), the Forbearance Agreement ceasing to be in full force and effect or amendment of the Forbearance Agreement without consent of the requisite number of revolving credit facility lenders, (iii) acceleration by the holders of any of the Defaulted Notes in accordance with the terms of the Defaulted Notes and (iv) the date on which the aggregate amount of advances (excluding letter of credit obligations) outstanding under the revolving credit facility exceeds $630.0 million. The Second A&R Waiver includes customary representations and does not limit, impair or constitute a waiver of the rights and remedies of the lenders or the Agent, and except as expressly provided in the Second A&R Waiver and does not amend or affect the terms of the revolving credit facility.

Noteholder Forbearance

On July 15, 2020, the Company entered into a Forbearance Agreement (the “Forbearance Agreement”) pursuant to that certain indenture dated July 21, 2009 between the Company and U.S. Bank National Association, as indenture trustee, under which the respective Defaulted Notes were issued with certain beneficial holders or investment managers or advisors for such beneficial holders (the “Supporting Holders”). At the time of entry into the Forbearance Agreement, the Supporting Holders held (i) approximately 44.0% of the outstanding 2022 Notes, (ii) approximately 74.2%of the outstanding 2024 Notes, (iii) approximately 65.3% of the outstanding 2025 Notes, (iv) approximately 68.9% of the outstanding 2042 Notes and (v) approximately 82.9%of the outstanding 2044 Notes. The parties previously entered into a Forbearance Agreement on June 30, 2020 that expired on July 15, 2020.

Pursuant to the Forbearance Agreement, the Supporting Holders have agreed to (i) forbear from the exercise of certain rights and remedies that they have under the related indenture or applicable law with respect to certain specified defaults and events of defaults (including cross-defaults as a result of an acceleration) and (ii) in the event that the applicable trustee or any holder or group of holders takes any action which results in an acceleration during the Forbearance Period (as defined below), to deliver written notice to the applicable trustee to rescind such acceleration and its consequences and take all other action in their power to cause such acceleration to be rescinded and annulled.

~~In January 2017,~~

The Company and the Supporting Holders have agreed to continue this forbearance until the earlier of (i) August 3, 2020, (ii) the occurrence of any other default or event of default under the related indenture that is not cured within any applicable grace period, (iii) the acceleration of the Company’s obligations under the revolving credit facility, (iv) the termination or invalidity of the Second A&R Waiver, the Second A&R Waiver otherwise ceasing to be in full force and effect, or the Second A&R Waiver being amended, supplemented or otherwise modified in each case without the consent of the Supporting Holders, (v) the commencement of a case under title 11 of the United States Code or any similar reorganization, liquidation, insolvency or receivership proceeding by or against the Company or a subsidiary of the Company or (vi) the failure of the Company to timely comply with any term, condition or covenant set forth in the Forbearance Agreement (such period, the “Forbearance Period”).

Senior Notes

We did not make interest payments due in June and July 2020 on the Defaulted Notes. The June 2020 missed interest payments represent current events of default under the Defaulted Notes. We have entered into the Forbearance Agreement pursuant to which certain holders of our senior notes have agreed to forbear from the exercise of certain rights and remedies that they have with respect to certain specified defaults and events of defaults (including cross-defaults). However, the events of default under the Defaulted Notes have not been waived and still exist, and the Forbearance Agreement will terminate automatically on August 3, 2020 and may be terminated upon certain other events that may occur prior to August 3, 2020. Accordingly, the amounts outstanding under the Defaulted Notes were classified as current in the accompanying Condensed Consolidated Balance Sheet as of June 30, 2020.

As a result of the Rowan Transaction, we ~~completed exchange offers (the "Exchange Offers"~~acquired the following senior notes issued by Rowan Companies, Inc. ("RCI") ~~to exchange our outstanding 8.50%~~and guaranteed by Rowan: (1) $201.4 million in aggregate principal amount of 7.875% unsecured senior notes due 2019, ~~6.875%~~which have been repaid in full, (2) $620.8 million in aggregate principal amount of 4.875% unsecured senior notes due ~~2020 and 4.70% senior notes due 2021 for 8.00%~~2022, (3) $398.1 million in aggregate principal amount of 4.75% unsecured senior notes due 2024, ~~and cash. The Exchange Offers resulted~~(4) $500.0 million in ~~the tender of $649.5 million~~ aggregate principal amount of ~~our outstanding~~7.375% unsecured senior notes ~~that were settled~~due 2025, (5) $400.0 million in aggregate principal amount of 5.40% unsecured senior notes due 2042 and ~~exchanged as follows (in millions):~~

Aggregate Principal Amount Repurchased 8.00% Senior notes due 2024 Consideration
Cash Consideration⁽¹⁾
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


⁽¹⁾	As of December 31, 2016, the aggregate amount of principal repurchased with cash of $332.5 million, along with associated premiums, was classified as current maturities of long-term debt on our condensed consolidated balance sheet.

~~During~~(6) $400.0 million in aggregate principal amount of 5.85% unsecured senior notes due 2044. On February 3, 2020, Rowan and RCI transferred substantially all their assets on a consolidated basis to Valaris plc, Valaris plc became the ~~first quarter, we recognized a net pre-tax loss~~obligor on the ~~Exchange Offers~~notes and Rowan and RCI were relieved of ~~$6.2 million, consisting of a loss of $3.5 million that includes~~their obligations under the ~~write-off of premiums on tendered debt~~notes and ~~$2.7 million of transaction costs.~~the related indenture.

~~Open Market Repurchases~~

During the nine-month period ended September 30, 2017, we repurchased certain of our outstanding senior notes with cash on hand and recognized an insignificant pre-tax gain, net of discounts, premiums and debt issuance costs. The aggregate repurchases were as follows (in millions):

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.~~

~~Maturities~~

~~Our next debt maturity is $237.6 million during 2019, followed by $450.9 million~~ ~~and~~ ~~$269.7 million during 2020 and 2021, respectively.~~

Revolving Credit Facility

~~In October 2017,~~As of June 30, 2020, we ~~amended~~had $588.8 million outstanding under our credit facility, inclusive of $37.8 million in letters of credit, leaving $1.0 billion of undrawn capacity available. Our revolving credit facility ~~("Credit Facility")~~requires compliance with covenants 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 2019maintain specified financial and declines to $1.2 billion through September 2022. The credit agreement governing our revolving 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.

Also in October, Moody's downgraded our credit rating from B1 to B2 and Standard & Poor's downgraded our credit rating from BB to B+. The Credit Facility amendment and the rating actions resulted in increases to the interest rates applicable to our borrowings. The applicable margin rates are 2.50% per annum for Base Rate advances and 3.50% per annum for LIBOR advances. In addition, our quarterly commitment fee increased as a result of the amendment and rating actions to 0.625% per annum on the undrawn portion of the $2.0 billion commitment.

~~The Credit Facility requires us to maintain~~guarantee coverage ratios, including a total debt to total capitalization ratio that is less than or equal to 60% ~~and~~. In the first six months of 2020, we incurred impairments of $3.6 billion, which contributed to ~~provide guarantees from certain~~an increase in the total debt to total capitalization ratio to 57.7% as of June 30, 2020. As of June 30, 2020, we were in compliance with our ~~rig-owning subsidiaries sufficient to meet certain guarantee coverage ratios. The Credit Facility also contains customary restrictive~~debt 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 updue to the ~~lesser~~Second A&R Waiver. There is a significant level of ~~$750 million or 10%~~uncertainty that we will remain in compliance with our credit facility covenants during the next twelve months. The full impact that the pandemic and the decline in oil prices and demand will have on our results of ~~consolidated tangible net worth (as defined in~~operations, financial condition, liquidity and cash flows is uncertain. If we were to violate 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~~covenants of the ~~business; paying or distributing dividends on our ordinary shares (subject to certain exceptions, including~~revolving credit facility, further borrowings under the ~~ability to continue paying~~credit facility would not be permitted, absent a ~~quarterly dividend of $0.01 per share); borrowings, if after giving effect to any such borrowings and the application~~waiver in respect of the ~~proceeds thereof,~~resulting event of default, and all outstanding borrowings could become immediately due and payable by action of lenders holding a majority of the ~~aggregate amount~~commitments under the facility. Any such acceleration would trigger a cross-acceleration event of ~~available cash (as defined~~default with respect to approximately $2.1 billion outstanding under the Defaulted Notes.

The failure to make the interest payments due in June 2020 on the ~~Credit Facility)~~Defaulted Notes would ~~exceed $150 million;~~have represented an event of default under the revolving credit facility if it had not been waived pursuant to the Second A&R Waiver. We have entered into the Second A&R Waiver pursuant to which the lenders under our revolving credit facility have waived certain defaults and ~~entering into~~events of default under the revolving credit facility, including in relation to the non-payment of interest under the Defaulted Notes. However, the Second A&R Waiver will terminate automatically on August 3, 2020 and may be terminated upon certain ~~transactions with affiliates.~~other events that may occur prior to August 3, 2020, including if advances

~~The Credit Facility also includes a covenant restricting our ability to repay indebtedness maturing after September 2022, which is~~

outstanding under the ~~final maturity date of our Credit Facility. This covenant is subject to certain exceptions that permit us to manage our balance sheet, including~~revolving credit facility exceed $630.0 million. Accordingly, 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.~~revolving credit facility were classified as current in the accompanying Condensed Consolidated Balance Sheet as of June 30, 2020.

AsThe revolving credit facility generally limits the company to no more than $200.0 million in available cash (including certain liquid investments as defined in the facility documents), and requires consent of ~~September 30, 2017, we were~~all lenders for draws on the facility that would result in ~~compliance~~the company having more than $200.0 million in ~~all material respects with our covenants~~available cash and liquid investments.

Furthermore, the agent under the ~~Credit Facility.~~revolving credit facility has reserved the right to assert that a material adverse effect has occurred based on changes in the oil market and certain company-specific operating incidents, including the drop of the blowout preventer stack off the VALARIS DS-8. See "Note 13- Contingencies" for additional information. We ~~had~~do not believe that a material adverse effect has occurred, but there can be no ~~amounts outstanding under~~assurance that the ~~Credit Facility~~lenders will not assert a material adverse effect as a basis to deny further borrowing requests.

2024 Convertible Notes

In December 2016, Ensco Jersey Finance Limited, a wholly-owned subsidiary of ~~September 30, 2017~~Valaris plc, issued $849.5 million aggregate principal amount of unsecured 2024 Convertible Notes in a private offering. The 2024 Convertible Notes are fully and ~~December 31, 2016.~~

~~Our access to credit~~unconditionally guaranteed, on a senior, unsecured basis, by Valaris plc and ~~capital markets depends on the credit ratings assigned to~~are exchangeable into cash, our debt. 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. With a credit rating below investment grade, we have no access to the commercial paper market.

~~Note 8 -Shareholders' Equity~~

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 last annual general meeting held on May 22, 2017, our shareholders authorized the allotment of 101.1 million Class A ordinary shares ~~(or 202.2 million~~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 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 17.8336 shares per $1,000 principal amount of notes, representing an exchange price of $56.08 per share, and is 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.

On April 15, 2020, we were notified by the NYSE that the average closing price of our Class A ordinary shares ~~in connection with an offer by way of a rights issue or other similar issue) for~~was below $1.00 per share over a period upof 30 consecutive trading days, which is the minimum average share price required to maintain listing on NYSE. The Company has until late December 2020 to regain compliance. If our shares are delisted from the NYSE and not concurrently listed on Nasdaq, the holders of our 2024 Convertible Notes would have the right to require us to repurchase the notes at a price equal to the ~~conclusion~~principal amount thereof plus accrued interest to the repurchase date. Such an accelerated repurchase, if required by the holders, could be in excess of the forecasted availability under the revolving credit facility and new financing facilities could be required, which we may not be able to put in place.

Open Market Repurchases

In early March 2020, we repurchased $12.8 million of our ~~2018 annual general meeting (or, if earlier, at~~outstanding 4.70% Senior notes due 2021 on the ~~close~~open market for an aggregate purchase price of ~~business~~$9.7 million, excluding accrued interest, with cash on ~~August 22, 2018).~~

On October 5, 2017 in conjunction with the approval of the Merger, our shareholders authorized an increase in our allotment to reflect our expected enlarged share capital immediately following the completion of the Merger.hand. As a result of the ~~authorization, our share allotment increased to 146.1~~transaction, we recognized a pre-tax gain of $3.1 million, ~~Class A ordinary shares (or 292.2 million Class A ordinary shares~~net of discounts in ~~connection with an offer by way~~other, net, in the consolidated statement of ~~a rights issue or other similar issue).~~operations.

~~In connection with the Merger on October 6, 2017, we issued 134.1 million Ensco Class A ordinary shares to Atwood shareholders.~~

Note 911 - Shareholders' Equity

Activity in our various shareholders' equity accounts for the three and six months ended June 30, 2020 and 2019 were as follows (in millions, except per share amounts):



	Shares	Par Value		Additional Paid-in Capital			Retained Earnings (Deficit)			AOCI			Treasury Shares			Non-controlling Interest
BALANCE, December 31, 2019	205.9	$	82.5	$	8,627.8		$	671.7		$	6.2		$	(77.3	)	$	(1.3	)
Net loss	—	—		—			(3,006.3		)	—			—			(1.4		)
Shares issued under share-based compensation plans, net	—	—		(.7		)	—			—			.9			—
Repurchase of shares	—	—		—			—			—			(.9		)	—
Share-based compensation cost	—	—		7.8			—			—			—			—
Net other comprehensive loss	—	—		—			—			(13.4		)	—			—
BALANCE, March 31, 2020	205.9	$	82.5	$	8,634.9		$	(2,334.6	)	$	(7.2	)	$	(77.3	)	$	(2.7	)
Net loss	—	—		—			(1,107.4		)	—			—			(1.4		)
Shares issued under share-based compensation plans, net	.2	.1		(.7		)	—			—			.6			—
Repurchase of shares	—	—		—			—			—			(.1		)	—
Share-based compensation cost	—	—		5.7			—			—			—			—
Net other comprehensive loss	—	—		—			—			(6.1		)	—			—
Distributions to noncontrolling interests	—	—		—			—			—			—			(.9		)
BALANCE, June 30, 2020	206.1	$	82.6	$	8,639.9		$	(3,442.0	)	$	(13.3	)	$	(76.8	)	$	(5.0	)



	Shares	Par Value		Additional Paid-in Capital			Retained Earnings			AOCI		Treasury Shares			Non-controlling Interest
BALANCE, December 31, 2018	115.2	$	46.2	$	7,225.0		$	874.2		$	18.2	$	(72.2	)	$	(2.6	)
Net loss	—	—		—			(190.4		)	—		—			2.4
Dividends paid ($0.04 per share)	—	—		—			(4.5		)	—		—			—
Shares issued under share-based compensation plans, net	—	—		(.1		)	—			—		.1			—
Repurchase of shares	—	—		—			—			—		(2.8		)	—
Share-based compensation cost	—	—		5.3			—			—		—			—
Net other comprehensive income	—	—		—			—			1.5		—			—
BALANCE, March 31, 2019	115.2	$	46.2	$	7,230.2		$	679.3		$	19.7	$	(74.9	)	$	(0.2	)
Net income	—	—		—			405.5			—		—			1.8
Equity issuance in connection with the Rowan Transaction	88.0	35.2		1,367.5			—			—		.1			—
Shares issued under share-based compensation plans, net	2.6	1.1		(1.1		)	—			—		(.8		)	—
Repurchase of shares	—	—		—			—			—		(1.4		)	—
Share-based compensation cost	—	—		13.8			—			—		—			—
Net other comprehensive income	—	—		—			—			.2		—			—
BALANCE, June 30, 2019	205.8	$	82.5	$	8,610.4		$	1,084.8		$	19.9	$	(77.0	)	$	1.6

Note 12 -Income Taxes

~~We have historically~~Valaris plc, our parent company, is domiciled and resident in the U.K. 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-U.K. subsidiaries is generally not subject to U.K. taxation. 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. Therefore, we generally 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.

Income tax rates and taxation systems in the jurisdictions in which our subsidiaries conduct operations vary and our subsidiaries are frequently subjected to minimum taxation regimes. In some jurisdictions, tax liabilities are based on gross revenues, statutory or negotiated deemed profits or other factors, rather than on net income and our subsidiaries are frequently unable to 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.

Historically, we calculated our provision for income taxes during interim reporting periods by applying the estimated annual effective tax rate for the full fiscal year to pre-tax income or loss, excluding discrete items, for the reporting period. We determined that since small changes in estimated pre-tax income or loss would result in significant changes in ~~our~~the estimated annual effective tax rate, the historical method ~~utilized~~ would not provide a reliable estimate of income taxes for the ~~three-month~~three and ~~nine-month periods~~six months ended ~~September~~June 30, ~~2017.~~2020 and 2019. We used a discrete effective tax rate method to calculate income taxes for the ~~three-month~~three and ~~nine-month periods~~six months ended ~~September~~June 30, ~~2017.~~2020 and 2019. We will continue to evaluate income tax estimates under the historical method in subsequent quarters and employ a discrete effective tax rate method if warranted.

Discrete income tax ~~expense~~benefit for the ~~three-month period~~three months ended ~~September~~June 30, ~~2017~~2020 was ~~$3.2~~$47.3 million and ~~resulted~~was primarily ~~from a~~attributable to rig ~~sale~~impairments and other resolutions of prior year tax matters. Discrete income tax benefit for the three months ended June 30, 2019 was $1.2 million and was primarily attributable to resolution of prior period tax matters. Excluding the aforementioned discrete tax items, income tax expense for the ~~nine-month period~~three months ended ~~September~~June 30, ~~2017~~2020 and 2019 was ~~$13.0~~$31.5 million and ~~resulted~~$33.8 million, respectively.

Discrete income tax benefit for the six months ended June 30, 2020 was $211.7 million and was primarily ~~from the Exchange Offers and debt repurchases, rig sales,~~attributable to a restructuring transaction, ~~settlement~~rig impairments, implementation 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.~~

Our consolidated effective income tax rate for the three-month and nine-month periods ended September 30, 2016, excluding the impact of discrete tax items, was 6.0% and 21.9%, respectively. Net discrete income tax benefits for the three-month and nine-month periods ended September 30, 2016 of $6.0 million and $1.6 million, respectively, were primarily attributable to the gain on debt extinguishment,U.S. Cares Act, changes in liabilities for unrecognized tax benefits associated with tax positions taken in prior years and the resolution of other ~~resolutions of~~ prior ~~year~~period tax matters. Discrete income tax benefit for the six months ended June 30, 2019 was $0.6 million and was primarily attributable to unrecognized tax benefits associated with tax positions taken in prior years and the resolution of other prior period tax matters. Excluding the aforementioned discrete tax items, income tax expense for the ~~nine-month~~six months ended June 30, 2020 and 2019 was $43.9 million and $64.7 million, respectively.

Restructuring Transactions

As discussed in "Note 10 - 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% unsecured senior notes due 2022, 5.40% unsecured senior notes due 2042, 7.375% unsecured senior notes due 2025, 4.75% unsecured senior notes due

2024 and 5.85% unsecured senior notes due 2044. We recognized a tax benefit of $66.0 million during the six months ended June 30, 2020 in connection with this transaction.

Unrecognized tax benefits

During 2019, the Luxembourg tax authorities issued aggregate tax assessments totaling approximately €142.0 million (approximately $159.6 million converted using the current period-end exchange rates) related to tax years 2014, 2015 and 2016 for several of Rowan's Luxembourg subsidiaries. We recorded €93.0 million (approximately $104.5 million converted using the current period-end exchange rates) in purchase accounting related to these assessments. During the first quarter of 2020, in connection with the administrative appeals process, the tax authority withdrew assessments of €142.0 million (approximately $159.6 million converted using the current period-end exchange rates), 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 $88.8 million converted using the current period-end exchange rates) and €2.0 million (approximately $2.2 million converted using the current period-end exchange rates), respectively. The de-recognition of amounts related to these assessments was recognized as a tax benefit during the three-month period ended ~~September~~March 31, 2020 and is included in changes in operating assets and liabilities on the condensed consolidated statement of cash flows for the six months ended June 30, ~~2016 also resulted from restructuring transactions involving~~2020.

During 2019, the Australian tax authorities issued aggregate tax assessments totaling approximately A$101 million (approximately $69.7 million converted at current period-end exchange rates) plus interest related to the examination of certain of our ~~subsidiaries.~~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 recorded a $15.6 million liability for these assessments as of June 30, 2020. We believe our tax returns are materially correct as filed, and 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.

Note 1013 -Contingencies

~~Brazil Internal Investigation~~Angola Non-Drilling Event

~~Pride International LLC, formerly Pride International, Inc. (“Pride”),~~In March 2020, VALARIS DS-8 experienced a ~~company~~non-drilling incident while operating offshore Angola, resulting in the blowout preventer (BOP) stack being disconnected from the riser while the rig was moving between well locations. The BOP stack, which we acquired in 2011, commenced drilling operations in Brazil in 2001. In 2008, Pride entered into a drilling services agreement with Petrobras (the "DSA") for ENSCO DS-5, a drillship ordered from Samsung Heavy Industries, a shipyard in South Korea ("SHI"). Beginning in 2006, Pride conducted periodic compliance reviews of its business with Petrobras, and, after the acquisition of Pride, Ensco conducted similar compliance reviews.

We commenced a compliance review in early 2015 after media reports were released regarding ongoing investigations of various kickback and bribery schemes in Brazil involving Petrobras. While conducting our compliance review, we became aware of an internal audit report by Petrobras alleging irregularities in relationlater recovered, dropped to the ~~DSA. Upon learning~~seabed floor, clear of any subsea structures. No injuries, environmental pollution or third-party damage resulted from the BOP stack being disconnected.

As a result of the ~~Petrobras internal audit report,~~incident, the operator terminated the contract. The termination results in a decline in our ~~Audit Committee appointed independent counsel~~contracted revenue backlog of approximately $150 million. We have loss of hire insurance for $602,500 per day, after a 45-day deductible waiting period, through the end of the contract in November 2020. The waiting period expired on April 22, 2020. We are seeking to ~~lead~~recover losses incurred in accordance with the terms of this insurance policy, which would largely offset the lost backlog noted above. There can be no assurance as to the timing or amount of insurance proceeds ultimately received.

Indonesian Well-Control Event

In July 2019, a well being drilled offshore Indonesia by one of our 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 ~~alleged irregularities. Further, in June~~event and ~~July 2015, we voluntarily~~have contacted the ~~SEC~~customer, us and the U.S. Department of Justice ("DOJ"), respectively, to advise them of this matter and of our Audit Committee’s investigation. Independent counsel, under the direction of our Audit Committee, has substantially completed its investigation by reviewing and analyzing available documents and correspondence and interviewing current and former

~~employees~~other parties involved in drilling the ~~DSA negotiations and the negotiation of the ENSCO DS-5 construction contract with SHI (the "DS-5 Construction Contract").~~

To date, our Audit Committee has found no credible evidence that Pride or Ensco or any of their current or former employees were aware of or involved in any wrongdoing, and our Audit Committee has found no credible evidence linking Ensco or Pride to any illegal acts committed by our former marketing consultant who provided services to Pride and Ensco in connection with the DSA. Independent counsel has continued to provide the SEC and DOJ with updates throughout the investigation, including detailed briefings regarding its investigation and findings. We entered into a one-year tolling agreement with the DOJ that expired in December 2016. We extended our tolling agreement with the SEC for 12 months until March 2018.

~~Subsequent to initiating our Audit Committee investigation, Brazilian court documents connected to the prosecution of former Petrobras directors and employees as~~ well as certain other third parties, including our former marketing consultant, referenced the alleged irregularities cited in the Petrobras internal audit report. Our former marketing consultant has entered into a plea agreement with the Brazilian authorities. On January 10, 2016, Brazilian authorities filed an indictment against a former Petrobras director. This indictment states that the former Petrobras director received bribes paid out of proceeds from a brokerage agreement entered into for purposes of intermediating a drillship construction contract between SHI and Pride, which we believe to be the DS-5 Construction Contract. The parties to the brokerage agreement were a company affiliated with a person acting on behalf of the former Petrobras director, a company affiliated with our former marketing consultant, and SHI. The indictment alleges that amounts paid by SHI under the brokerage agreement ultimately were used to pay bribes to the former Petrobras director. The indictment does not state that Pride or Ensco or any of their current or former employees were involved in the bribery scheme or had any knowledge of the bribery scheme.

On January 4, 2016, we received a notice from Petrobras declaring the DSA void effective immediately. Petrobras’ notice alleges that our former marketing consultant both received and procured improper payments from SHI for employees of Petrobras and that Pride had knowledge of this activity and assisted in the procurement of and/or facilitated these improper payments. We disagree with Petrobras’ allegations. See "DSA Dispute" below for additional information.

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 SHI and Pride in relation to the DSA. The Brazilian authorities requested information regarding our compliance program and the findings of our internal investigations. We are cooperating with the ~~Office of the Attorney General and have provided documents in response to their request.~~Indonesian authorities. We cannot predict the scope or ultimate outcome of this ~~procedure or whether any other 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. If the ~~SEC or DOJ determines that violations of the FCPA have occurred, or if any governmental authority determines~~Indonesian authorities determine that we ~~have~~ violated ~~applicable anti-bribery~~local laws ~~they~~in connection with this matter, we could ~~seek civil and criminal sanctions,~~be subject to penalties including ~~monetary penalties, against us, as well as changes to our business practices and compliance programs, any of~~environmental or other liabilities, which ~~could~~may have a material adverse ~~effect~~impact on our business and financial condition. Although our internal investigation is substantially complete, we cannot predict whether any additional allegations will be made or whether any additional facts relevant to the investigation will be uncovered during the course of the investigation and what impact those allegations and additional facts will have on the timing or conclusions of the investigation. Our Audit Committee will examine any such additional allegations and additional facts and the circumstances surrounding them.us.

~~DSA~~

Middle East Dispute

~~As described above, on January 4, 2016, Petrobras sent~~On July 30, 2019, we received notice that a ~~notice to us declaring~~local partner of legacy Ensco plc in the DSA void effective immediately, reserving its rights and stating its intention to seek any restitution to which it may be entitled. We disagree with Petrobras’ declaration that the DSA is void. We believe that Petrobras repudiated the DSA and have therefore accepted the DSA as terminated on April 8, 2016 (the "Termination Date"). At this time, we cannot reasonably determine

~~the validity of Petrobras' claim or the range of our potential exposure, if any. As~~Middle East filed a ~~result, there can be no assurance as to how this dispute will ultimately be resolved.~~

We did not recognize revenue for amounts owed to us under the DSA from the beginning of the fourth quarter of 2015 through the Termination Date, as we concluded that collectability of these amounts was not reasonably assured. Additionally, our receivables from Petrobras related to the DSA from prior to the fourth quarter of 2015 are fully reserved in our condensed consolidated balance sheet as of September 30, 2017. We have initiated arbitration proceedingslawsuit in the U.K. against ~~Petrobras seeking payment~~the Company alleging it induced the breach of ~~all amounts owed~~a non-compete provision in an agreement between the local partner and a subsidiary of the Company. The lawsuit included a claim for an unspecified amount of damages in excess of £100 million and other relief. We reached an agreement to ~~us under~~settle this matter and to acquire the DSA, in addition to any other amounts to which we are entitled, and intend to vigorously pursue our claims. Petrobras subsequently filed a counterclaim seeking restitution of certain sums paid under the DSA less value received by Petrobras under the DSA. We have also initiated separate arbitration proceedingslocal partner's interest in the ~~U.K. against SHI~~subsidiary for ~~any losses~~an aggregate amount of $27.5 million, which was paid in April 2020. Of this amount, we concluded that $20.3 million was attributable to the settlement of the dispute and was recognized as a loss included in other, net, in our consolidated statement of operations for the year ended 31 December 2019. The remaining amount is attributable to the acquisition of the local partner's interest in the subsidiary.

ARO Funding Obligations

Valaris and Saudi Aramco have ~~incurred~~agreed to take all steps necessary to ensure that ARO purchases at least 20 newbuild jackup rigs ratably over an approximate 10-year period. In January 2020, ARO ordered the first two newbuild jackups for delivery scheduled in 2022. The 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. 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 partners agreed that Saudi Aramco, as a customer, will provide drilling contracts to ARO in connection with the ~~foregoing. SHI subsequently filed~~acquisition of the newbuild rigs. The initial contracts for each newbuild rig will be determined using a ~~statement~~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 ~~defense disputing our claim. There can be no assurance as to how these arbitration proceedings will ultimately be resolved.~~

~~Customer Dispute~~

~~A customer filed a lawsuit~~another eight years of term, re-priced in ~~Texas federal court against one of our subsidiaries claiming damages~~three-year intervals based on ~~allegations that our subsidiary breached and was negligent in the performance of~~ a ~~drilling contract during the period beginning in mid-2011 through May 2012. The customer's court documents alleged damages totaling approximately $40 million.~~During the second quarter, we settled the lawsuit and agreed to pay the customer $9.8 million, which was recognized in contract drilling expense in our condensed consolidated statements of operations for the nine-month period ended September 30, 2017.market pricing mechanism.

~~Atwood Merger~~

~~On June 23, 2017, a putative class action captioned~~ ~~Bernard Stern v. Atwood Oceanics, Inc., et al~~, was filed in the U.S. District Court for the Southern District of Texas against Atwood, Atwood’s directors, Ensco and Merger Sub. The Stern complaint generally alleges that Atwood and the Atwood directors disseminated a false or misleading registration statement on Form S-4 (the “Registration Statement”) on June 16, 2017, which omitted material information regarding the proposed Merger, in violation of Section 14(a) of the Exchange Act. Specifically, the Stern complaint alleges that Atwood and the Atwood directors omitted material information regarding the parties’ financial projections, the analysis performed by Atwood’s financial advisor, Goldman Sachs & Co. LLC (“Goldman Sachs”), in support of its fairness opinion, the timing and nature of communications regarding post-transaction employment of Atwood's directors and officers, potential conflicts of interest of Goldman Sachs, and whether there were further discussions with another potential acquirer of Atwood following the May 30, 2017 announcement of the Merger. The Stern complaint further alleges that the Atwood directors, Ensco and Merger Sub are liable for these violations as “control persons” of Atwood under Section 20(a) of the Exchange Act. With respect to Ensco, the Stern complaint alleges that Ensco had direct supervisory control over the composition of the Registration Statement. The Stern complaint seeks injunctive relief, including to enjoin the Merger, rescissory damages, and an award of attorneys’ fees in addition to other relief.

~~On June 27, 2017, June 29, 2017 and June 30, 2017, additional putative class actions captioned~~ ~~Joseph Composto v. Atwood Oceanics, Inc., et al, Booth Family Trust v. Atwood Oceanics, Inc., et al~~ ~~and~~ ~~Mary Carter v. Atwood Oceanics, Inc.et al~~, respectively, were filed in the U.S. District Court for the Southern District of Texas against Atwood and Atwood’s directors. These actions allege violations of Sections 14(a) and 20(a) of the Exchange Act by Atwood and Atwood’s directors similar to those alleged in the Stern complaint; however, neither Ensco plc nor Merger Sub is named as a defendant in these actions. On October 2, 2017, the actions were consolidated and the Stern matter was designated as the lead case. The plaintiffs subsequently voluntarily dismissed the actions.

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 orand cash flows.

In the ordinary course of business with customers and others, we have entered into letters of credit ~~and surety bonds~~ 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 ~~and surety bonds~~ outstanding as of ~~September~~June 30, ~~2017~~2020 totaled ~~$83.5~~$112.9 million and ~~were~~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 ~~September~~June 30, ~~2017,~~2020, we ~~were~~had not been required to make collateral deposits with respect to these agreements.

Note 1114 -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 Transition Services Agreement, Rig Lease Agreements and Secondment Agreement. Floaters, Jackups and ARO are also reportable ~~segments, Floaters and Jackups, provide one service, contract drilling.~~segments.

~~Segment information for the three-month and nine-month periods ended 2017 and 2016 is presented below (in millions).~~ General and administrative expense and depreciation expense incurred by our corporate office are not allocated to our operating segments for purposes of measuring segment operating income (loss) and 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 and equipment.

The full operating results included below for ARO (representing only results of ARO from the Transaction Date) are not included within our consolidated results and thus deducted under "Reconciling Items" and replaced with our equity in earnings of ARO. See "Note 4- Equity Method Investment in ARO" for additional information on ARO and related arrangements.

Segment information for the three and six months ended June 30, 2020 and 2019 is presented below (in millions):

Three Months Ended ~~September~~June 30, ~~2017~~2020


	Floaters		Jackups			Other		Operating Segments Total		Reconciling Items			Consolidated Total		Floaters			Jackups			ARO		Other		Reconciling Items			Consolidated Total
Revenues	$	291.9	$	153.1		$	15.2	$	460.2	$	—		$	460.2	$	163.6		$	186.3		$	146.0	$	38.9	$	(146.0	)	$	388.8
Operating expenses
Contract drilling (exclusive of depreciation)	139.1		132.9			13.8		285.8		—			285.8		170.8			182.7			112.5		17.2		(112.5		)	370.7
Loss on impairment															831.9			0.4			—		5.7		—			838.0
Depreciation	72.7		31.6			—		104.3		3.9			108.2		62.0			52.8			13.3		11.2		(7.8		)	131.5
General and administrative	—		—			—		—		30.4			30.4		—			—			7.1		—		55.5			62.6
Equity in earnings of ARO															—			—			—		—		(5.2		)	(5.2		)
Operating income (loss)	$	80.1	$	(11.4	)	$	1.4	$	70.1	$	(34.3	)	$	35.8	$	(901.1	)	$	(49.6	)	$	13.1	$	4.8	$	(86.4	)	$	(1,019.2	)
Property and equipment, net	$	8,545.5	$	2,502.4		$	—	$	11,047.9	$	48.5		$	11,096.4	$	6,536.9		$	4,000.6		$	739.7	$	655.1	$	(739.7	)	$	11,192.6

Three Months Ended ~~September~~June 30, ~~2016~~2019


	Floaters		Jackups		Other		Operating Segments Total		Reconciling Items			Consolidated Total		Floaters			Jackups			ARO		Other		Reconciling Items			Consolidated Total
Revenues	$	319.3	$	213.8	$	15.1	$	548.2	$	—		$	548.2	$	295.6		$	229.2		$	123.8	$	59.1	$	(123.8	)	$	583.9
Operating expenses
Contract drilling (exclusive of depreciation)	153.7		133.2		11.2		298.1		—			298.1		249.2			212.2			78.9		38.9		(78.9		)	500.3
Loss on impairment														—			—			—		—		2.5			2.5
Depreciation	72.9		32.1		—		105.0		4.4			109.4		98.4			55.5			12.4		—		(8.4		)	157.9
General and administrative	—		—		—		—		25.3			25.3		—			—			5.3		—		75.9			81.2
Operating income	$	92.7	$	48.5	$	3.9	$	145.1	$	(29.7	)	$	115.4
Equity in earnings of ARO														—			—			—		—		0.6			0.6
Operating income (loss)														$	(52.0	)	$	(38.5	)	$	27.2	$	20.2	$	(114.3	)	$	(157.4	)
Property and equipment, net	$	8,360.4	$	2,537.9	$	—	$	10,898.3	$	61.4		$	10,959.7	$	10,364.7		$	5,055.6		$	656.5	$	—	$	(621.1	)	$	15,455.7

~~Nine~~

Six Months Ended ~~September~~June 30, ~~2017~~

2020


	Floaters		Jackups		Other		Operating Segments Total		Reconciling Items			Consolidated Total		Floaters			Jackups			ARO		Other		Reconciling Items			Consolidated Total
Revenues	$	840.7	$	503.8	$	44.3	$	1,388.8	$	—		$	1,388.8	$	343.2		$	399.1		$	286.3	$	103.1	$	(286.3	)	$	845.4
Operating expenses
Contract drilling (exclusive of depreciation)	431.1		383.8		40.3		855.2		—			855.2		384.7			408.8			220.8		53.2		(220.8		)	846.7
Loss on impairment														3,386.2			254.3			—		5.7		—			3,646.2
Depreciation	217.5		95.3		—		312.8		12.5			325.3		151.4			111.3			26.3		22.3		(15.3		)	296.0
General and administrative	—		—		—		—		86.9			86.9		—			—			15.4		—		100.6			116.0
Operating income	$	192.1	$	24.7	$	4.0	$	220.8	$	(99.4	)	$	121.4
Equity in earnings of ARO														—			—			—		—		(11.5		)	(11.5		)
Operating income (loss)														$	(3,579.1	)	$	(375.3	)	$	23.8	$	21.9	$	(162.3	)	$	(4,071.0	)
Property and equipment, net	$	8,545.5	$	2,502.4	$	—	$	11,047.9	$	48.5		$	11,096.4	$	6,536.9		$	4,000.6		$	739.7	$	655.1	$	(739.7	)	$	11,192.6



England and Wales		98-0635229
(State or other jurisdiction of incorporation or organization) ~~6 Chesterfield Gardens~~ ~~London, England~~ ~~(Address of principal executive offices)~~		~~98-0635229~~ (I.R.S. Employer Identification No.) ~~W1J 5BQ~~

110 Cannon Street
London,	England	EC4N 6EU
(Address of principal executive offices)		(Zip Code)



Title of each class	Ticker Symbol(s)	Name of each exchange on which registered
Class A ordinary shares, U.S. $0.40 par value	VAL	New York Stock Exchange
4.70% Senior Notes due 2021	VAL21	New York Stock Exchange
4.875% Senior Notes due 2022	VAL/22	New York Stock Exchange
4.50% Senior Notes due 2024	VAL24	New York Stock Exchange
4.75% Senior Notes due 2024	VAL/24	New York Stock Exchange
8.00% Senior Notes due 2024	VAL24A	New York Stock Exchange
5.20% Senior Notes due 2025	VAL25A	New York Stock Exchange
7.375% Senior Notes due 2025	VAL/25	New York Stock Exchange
7.75% Senior Notes due 2026	VAL26	New York Stock Exchange
5.4% Senior Notes due 2042	VAL/42	New York Stock Exchange
5.75% Senior Notes due 2044	VAL44	New York Stock Exchange
5.85% Senior Notes due 2044	VAL/44	New York Stock Exchange



Large accelerated filer	x☒	Accelerated filer	o☐

Non-Accelerated filer	o ~~(Do not check if a smaller reporting company)~~ ☐	Smaller reporting company	o☐

		Emerging-growth company	o☐



	June 30, 2020			December 31, 2019
Trade	$	316.7		$	466.4
Other	54.9			60.3
	371.6			526.7
Allowance for doubtful accounts	(8.3		)	(6.0		)
	$	363.3		$	520.7



	September 30, 2017			December 31, 2016
Trade	$	338.6		$	358.4
Other	31.2			24.5
	369.8			382.9
Allowance for doubtful accounts	(20.8		)	(21.9		)
	$	349.0		$	361.0



~~(Mark One)~~
x☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 ~~For the quarterly period ended September 30, 2017~~



o☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 ~~For the transition period from~~ to



	Gain (Loss) Recognized in Other Comprehensive (Loss) Income (Effective Portion)				(Loss) Gain Reclassified from Accumulated Other Comprehensive Income ("AOCI") into Income (Effective Portion)⁽¹⁾						Gain Recognized in Income on Derivatives (Ineffective Portion and Amount Excluded from Effectiveness Testing)⁽²⁾
	2017		2016		2017			2016			2017		2016
Interest rate lock contracts⁽³⁾	$	—	$	—	$	(.1	)	$	(.1	)	$	—	$	—
Foreign currency forward contracts⁽⁴⁾	1.7		—		.2			(2.1		)	.3		.2
Total	$	1.7	$	—	$	.1		$	(2.2	)	$	.3	$	.2



	Gain (Loss) Recognized in Other Comprehensive (Loss) Income (Effective Portion)					Loss Reclassified from AOCI into Income (Effective Portion)⁽¹⁾						(Loss) Gain Recognized in Income on Derivatives (Ineffective Portion and Amount Excluded from Effectiveness Testing)⁽²⁾
	2017		2016			2017			2016			2017			2016
Interest rate lock contracts⁽³⁾	$	—	$	—		$	(.3	)	$	(.2	)	$	—		$	—
Foreign currency forward contracts⁽⁵⁾	7.7		(.6		)	(.8		)	(9.9		)	(.1		)	2.1
Total	$	7.7	$	(.6	)	$	(1.1	)	$	(10.1	)	$	(.1	)	$	2.1



	Aggregate Principal Amount Repurchased		8.00% Senior notes due 2024 Consideration		Cash Consideration⁽¹⁾		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



	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


	Floaters	Jackups	Total⁽¹⁾	Floaters	Jackups	Other	Total Valaris	ARO
North & South America	8	6	14	7	7	—	14	—
Europe & Mediterranean	4	10	14
Europe & the Mediterranean				5	14	—	19	—
Middle East & Africa	3	11	14	2	12	9	23	7
Asia & Pacific Rim	5	5	10	3	6	—	9	—
Asia & Pacific Rim (under construction)	—	1	1	2	—	—	2	—
Held-for-sale	1	—	1	6	1	—	7	—
Total	21	33	54	25	40	9	74	7


⁽¹⁾	~~We provide management services on two rigs owned by third-parties not included in the table above.~~



	June 30, 2020		December 31, 2019
Tax receivables	$	64.4	$	36.3
Deferred tax assets	48.6		26.6
Right-of-use assets	46.2		58.1
Supplemental executive retirement plan assets	22.3		26.0
Deferred costs	8.4		7.1
Intangible assets	3.8		11.9
Other	16.5		22.3
	$	210.2	$	188.3



	June 30, 2020		December 31, 2019
Accrued interest	$	157.2	$	115.2
Personnel costs	97.9		134.4
Income and other taxes payable	65.9		61.2
Deferred revenue	31.5		30.0
Lease liabilities	16.8		21.1
Derivative liabilities	4.2		.9
Settlement of legal dispute	—		20.3
Other	24.6		34.6
	$	398.1	$	417.7



	June 30, 2020		December 31, 2019
Unrecognized tax benefits (inclusive of interest and penalties)	$	240.1	$	323.1
Pension and other post-retirement benefits	230.3		246.7
Intangible liabilities	50.8		52.1
Lease liabilities	44.1		51.8
Deferred tax liabilities	37.1		99.0
Supplemental executive retirement plan liabilities	22.7		26.7
Personnel costs	15.1		24.5
Deferred revenue	11.2		9.7
Other	41.8		33.8
	$	693.2	$	867.4



	September 30, 2017			December 31, 2016
Derivative instruments	$	22.4		$	13.6
Currency translation adjustment	7.8			7.6
Other	(1.6		)	(2.2		)
	$	28.6		$	19.0


⁽¹⁾	During the ~~three-month~~three and ~~nine-month periods~~six months ended ~~September~~June 30, ~~2017~~2020 and ~~2016, all revenues were attributable to our Floater segment.~~


⁽¹⁾	During the three-month periods ended September 30, 2017 and 2016, 85% and 87% of the revenues earned in Angola, respectively, were attributable to our Floaters segment. During the nine-month periods ended September 30, 2017 and 2016, 86% and 87% of the revenues earned in Angola, respectively, were attributable to our Floaters segment.


⁽²⁾	~~During the three-month and nine-month periods ended September 30, 2017 and 2016,~~2019, all revenues were attributable to our Floaters segment.


⁽³⁾⁽²⁾	During the three-month period ended June 30, 2020, 17% of the revenues provided by BP were attributable to our Jackups segment, 39% of the revenues were attributable to our Floaters segment and ~~nine-month periods~~the remaining were attributable to our managed rigs. During the six-month period ended ~~September~~June 30, ~~2017~~2020, 20% of the revenues


⁽³⁾	During the three and ~~2016,~~six months ended June 30, 2020 and 2019, all revenues were attributable to our Jackups segment.


⁽¹⁾	During the three months ended June 30, 2020 and 2019, 100% and 94% of the revenues earned in Australia, ~~were attributable to our Floaters segment. For the three-month and nine-month periods ended September 30, 2016, all revenues were attributable to our Floaters segment.~~


⁽⁵⁾	~~During the three-month periods ended September 30, 2017 and 2016, 21% and 41% of the revenues earned,~~ respectively, were attributable to our Floaters segment, and ~~35% and 14%~~remaining revenues were attributable to our Jackups segment.


⁽⁴⁾	During the ~~nine-month period~~three and six months ended ~~September~~June 30, ~~2017~~2020 and ~~2016, 24%~~2019, all revenues earned in the United Kingdom and ~~86%~~Norway were attributable to our Jackups segment.


During the six monthsended June 30, 2020 and 2019, 79% and 88% of the revenues earned in Angola, respectively, were attributable to our Floaters segment, and the remaining revenues were attributable to our Jackups segment. ⁽⁶⁾	Revenue recognized during the nine-month period ended September 30, 2016 related to the U.S. Gulf of Mexico included termination fees totaling $205.0 million as discussed in "Note 1 - Unaudited Condensed Consolidated Financial Statements." ENSCO DS-9 termination revenues were attributed to the U.S. Gulf of Mexico as the related drilling contract was intended for operations in that region.

ENSCO PLC AND SUBSIDIARIES CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS Three Months Ended September 30, 2017 (In millions) (Unaudited)

	Ensco plc			ENSCO International Incorporated			Pride International LLC			Other Non-Guarantor Subsidiaries of Ensco			Consolidating Adjustments			Total
OPERATING REVENUES	$	13.0		$	47.2		$	—		$	490.1		$	(90.1	)	$	460.2
OPERATING EXPENSES
Contract drilling (exclusive of depreciation)	11.3			43.0			—			321.6			(90.1		)	285.8
Depreciation	—			4.0			—			104.2			—			108.2
General and administrative	10.3			5.1			—			15.0			—			30.4
OPERATING (LOSS) INCOME	(8.6		)	(4.9		)	—			49.3			—			35.8
OTHER INCOME (EXPENSE), NET	3.4			(28.0		)	(17.4		)	(1.0		)	2.6			(40.4		)
(LOSS) INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES	(5.2		)	(32.9		)	(17.4		)	48.3			2.6			(4.6		)
INCOME TAX PROVISION	—			11.6			—			11.8			—			23.4
DISCONTINUED OPERATIONS, NET	—			—			—			(.2		)	—			(.2		)
EQUITY (LOSSES) EARNINGS IN AFFILIATES, NET OF TAX	(20.2		)	29.9			23.2			—			(32.9		)	—
NET (LOSS) INCOME	(25.4		)	(14.6		)	5.8			36.3			(30.3		)	(28.2		)
NET INCOME ATTRIBUTABLE TO NONCONTROLLING INTERESTS	—			—			—			2.8			—			2.8
NET (LOSS) INCOME ATTRIBUTABLE TO ENSCO	$	(25.4	)	$	(14.6	)	$	5.8		$	39.1		$	(30.3	)	$	(25.4	)

VALARIS PLC AND SUBSIDIARIES CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS Six Months Ended June 30, 2020 (In millions) (Unaudited)

	Valaris plc			ENSCO International Incorporated			Pride International LLC			Other Non-Guarantor Subsidiaries of Valaris			Consolidating Adjustments			Total
OPERATING REVENUES	$	34.9		$	96.7		$	—		$	939.0		$	(225.2	)	$	845.4
OPERATING EXPENSES
Contract drilling (exclusive of depreciation)	56.2			95.7			—			920.0			(225.2		)	846.7
Loss on impairment	—			—			—			3,646.2			—			3,646.2
Depreciation	—			9.3			—			286.7			—			296.0
General and administrative	33.7			24.8			—			57.5			—			116.0
Total operating expenses	89.9			129.8			—			4,910.4			(225.2		)	4,904.9
EQUITY IN EARNINGS OF ARO	—			—			—			(11.5		)	—			(11.5		)
OPERATING LOSS	(55.0		)	(33.1		)	—			(3,982.9		)	—			(4,071.0		)
OTHER INCOME (EXPENSE), NET	215.5			(.2		)	(37.8		)	(399.7		)	8.9			(213.3		)
INCOME (LOSS) BEFORE INCOME TAXES	160.5			(33.3		)	(37.8		)	(4,382.6		)	8.9			(4,284.3		)
BENEFIT FOR INCOME TAXES	—			(100.0		)	—			(67.8		)	—			(167.8		)
EQUITY EARNINGS (LOSSES) IN AFFILIATES, NET OF TAX	(4,274.2		)	(134.6		)	14.9			—			4,393.9			—
NET LOSS	(4,113.7		)	(67.9		)	(22.9		)	(4,314.8		)	4,402.8			(4,116.5		)
NET LOSS ATTRIBUTABLE TO NONCONTROLLING INTERESTS	—			—			—			2.8			—			2.8
NET LOSS ATTRIBUTABLE TO VALARIS	$	(4,113.7	)	$	(67.9	)	$	(22.9	)	$	(4,312.0	)	$	4,402.8		$	(4,113.7	)


⁽¹⁾	The three months and six months ended June 30, 2019 include results of the Rowan transaction from April 11, 2019 through June 30, 2019.



	2017	2016
Floaters⁽¹⁾	20	19
Jackups^{(2) (3)}	32	35
Under construction⁽¹⁾⁽³⁾	1	3
Held-for-sale^{(2) (4)}	1	4
Total	54	61


⁽¹⁾	During the ~~third~~fourth quarter of ~~2017,~~2019, we ~~accepted delivery of ENSCO DS-10.~~


⁽²⁾	sold VALARIS 5006. During the first ~~quarter~~and second quarters of ~~2017,~~2020, we ~~classified ENSCO 56, ENSCO 86~~sold VALARIS 6002 and ~~ENSCO 99 as held-for-sale.~~VALARIS 5004, respectively. During the second quarter of ~~2017,~~2020, we classified ~~ENSCO 52~~VALARIS 8500, VALARIS 8501, VALARIS 8502, VALARIS DS-3, VALARIS DS-5 and VALARIS DS-6 as held-for-sale.


⁽³⁾⁽²⁾	During the fourth quarter of ~~2016,~~2019, we ~~accepted delivery~~sold VALARIS JU-96 and in the first quarter of ~~ENSCO 141.~~2020, we sold VALARIS JU-68. During the second quarter of 2020, we classified VALARIS JU-105 as held-for-sale and sold VALARIS JU-70 and VALARIS JU-71.


⁽⁴⁾⁽³⁾	~~During~~This represents the ~~fourth quarter of 2016, we sold ENSCO 53 and ENSCO 94. During the second quarter of 2017, we sold ENSCO 56, ENSCO 86, ENSCO 90 and ENSCO 99. During the third quarter of 2017, we sold ENSCO 52.~~seven rigs owned by ARO.


⁽²⁾	Includes our two management services contracts and our nine rigs leased to ARO under bareboat charter contracts.