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Noble Resources

Filed: 22 Apr 22, 10:05am
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Filed pursuant to Rule 424(b)(3)
Registration No. 333-255069

 

PROSPECTUS

 

 

LOGO

NOBLE FINANCE COMPANY

11%/ 13%/ 15% Senior Secured PIK Toggle Notes due 2028

 

 

This prospectus relates to the resale, from time to time, by the selling securityholders identified in this prospectus or in a subsequent prospectus supplement of up to $404,867,813 aggregate principal amount (assuming interest is paid-in-kind through maturity) of 11%/ 13%/ 15% Senior Secured PIK Toggle Notes due 2028 (the “Notes”) previously issued or to be issued by us.

We are registering the offer and sale of the Notes pursuant to registration rights we have granted under a registration rights agreement dated as of February 5, 2021. We have agreed to bear all of the expenses incurred in connection with the registration of the Notes. The selling securityholders will pay or assume brokerage commissions and similar charges, if any, incurred in the sale of the Notes.

We are not selling any Notes under this prospectus, and we will not receive any proceeds from the sale of the Notes by the selling securityholders under this prospectus. Our registration of the Notes covered by this prospectus does not mean that the selling securityholders will offer or sell any of the Notes. The Notes to which this prospectus relates may be offered and sold from time to time directly by the selling securityholders or alternatively through underwriters, broker dealers, or agents. The selling securityholders will determine at what price they may sell the Notes offered by this prospectus, and such sales may be made at fixed prices, at prevailing market prices at the time of the sale, at varying prices determined at the time of sale or at negotiated prices. See “Plan of Distribution” and “Selling Securityholders.”

We may amend or supplement this prospectus from time to time by filing amendments or supplements as required. You should read this entire prospectus and any amendments or supplements carefully before you make your investment decision.

There is currently no established public trading market for the Notes, and there can be no assurance that a public trading market will develop.

 

 

Investing in the Notes involves risks. See “Risk Factors” beginning on page 14 of this prospectus for a discussion of the risks regarding an investment in the Notes.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

 

 

The date of this prospectus is April 22, 2022.


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EXPLANATORY NOTE

As previously reported, on July 31, 2020 (the “Petition Date”), Noble Holding Corporation plc (formerly known as Noble Corporation plc), a public limited company incorporated under the laws of England and Wales (“Legacy Noble”), and certain of its subsidiaries, including Noble Finance Company (formerly known as Noble Corporation), an exempted company incorporated in the Cayman Islands with limited liability (“Finco”), filed voluntary petitions in the United States Bankruptcy Court for the Southern District of Texas (the “Bankruptcy Court”) seeking relief under chapter 11 of title 11 of the United States Code (the “Bankruptcy Code”). On September 4, 2020, the Debtors (as defined herein) filed with the Bankruptcy Court the Joint Plan of Reorganization of Noble Corporation plc and its Debtor Affiliates, which was subsequently amended on October 8, 2020 and October 13, 2020 and modified on November 18, 2020 (as amended, modified or supplemented, the “Plan”), and the related disclosure statement (the “Disclosure Statement”). On September 24, 2020, six additional subsidiaries of Legacy Noble (together with Legacy Noble and its subsidiaries that filed on the Petition Date, as the context requires, the “Debtors”) filed voluntary petitions in the Bankruptcy Court. The chapter 11 proceedings were jointly administered under the caption Noble Corporation plc, et al. (Case No. 20-33826) (the “Chapter 11 Cases”). On November 20, 2020, the Bankruptcy Court entered an order confirming the Plan.

In connection with the Chapter 11 Cases and the Plan, on and prior to the Effective Date (as defined herein), Legacy Noble and certain of its subsidiaries effectuated certain restructuring transactions, pursuant to which Legacy Noble formed Noble Corporation, an exempted company incorporated in the Cayman Islands with limited liability (“Noble Parent”), as an indirect, wholly-owned subsidiary of Legacy Noble and transferred to Noble Parent substantially all of the subsidiaries and other assets of Legacy Noble. On February 5, 2021 (the “Effective Date”), the Plan became effective in accordance with its terms, the Debtors emerged from the Chapter 11 Cases and Noble Parent became the new parent company. For additional information on the financial restructuring, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Executive Overview—Recent Events—Emergence from Chapter 11.” For a description of the events that occurred on the Effective Date, including the issuance of ordinary shares of Noble Parent with a nominal value of $0.00001 per share (the “Ordinary Shares”), approximately 8.3 million seven-year warrants with Black-Scholes protection (the “Tranche 1 Warrants”), approximately 8.3 million seven-year warrants with Black-Scholes protection (the “Tranche 2 Warrants”) and approximately 2.8 million five-year warrants with no Black-Sholes protection (the “Tranche 3 Warrants” and, together with the Tranche 1 Warrants and the Tranche 2 Warrants, the “Emergence Warrants”), see “Note 2—Chapter 11 Emergence” to the Audited Financial Statements (as defined herein) included elsewhere in this prospectus. In accordance with the Plan, Legacy Noble and its remaining subsidiary will in due course be wound down and dissolved in accordance with applicable law. The Bankruptcy Court closed the Chapter 11 Cases with respect to all Debtors other than Legacy Noble, pending its wind down. Noble Parent’s principal asset is all of the shares of Finco. Finco has no public equity outstanding. The consolidated financial statements of Noble Parent have been included in this registration statement because they include the accounts of Finco and Noble Parent conducts substantially all of its business through Finco and its subsidiaries. Finco was an indirect, wholly-owned subsidiary of Legacy Noble prior to the Effective Date and has been a direct, wholly-owned subsidiary of Noble Parent since the Effective Date.

On October 12, 2020, the Debtors entered into a Backstop Commitment Agreement (as amended, supplemented or modified, together with all exhibits and schedules thereto, the “Backstop Commitment Agreement”) with the backstop parties thereto (collectively, the “Backstop Parties”). On the Effective Date, pursuant to the Backstop Commitment Agreement and in accordance with the Plan, Noble Parent and Finco consummated a rights offering (the “Rights Offering”) of the Notes and associated Ordinary Shares at an aggregate subscription price of $200 million. On the Effective Date, Finco issued an aggregate principal amount of $216 million of Notes.

On the Effective Date, Finco entered into a registration rights agreement (the “Registration Rights Agreement”) with certain parties who received Notes under the Plan (the “RRA Noteholders”). Under the

 

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Registration Rights Agreement, RRA Noteholders have certain demand and piggyback registration rights, subject to the limitations set forth in the Registration Rights Agreement. Pursuant to their underwritten offering registration rights, RRA Noteholders have the right to demand that Finco register underwritten offerings of any or all of their Registrable Securities (as defined in the Registration Rights Agreement) pursuant to an effective registration statement, subject to certain conditions, including that the aggregate proceeds expected to be received from such an offering is equal to or greater than $20 million, unless such demand is not pursuant to a shelf registration statement, in which case certain RRA Noteholders may require that Finco register an underwritten offering for an amount that would enable all remaining Registrable Securities to be included in such offering. In addition, the Registration Rights Agreement requires Finco to register for resale such Registrable Securities pursuant to Rule 415 under the Securities Act of 1933, as amended (the “Securities Act”), including by filing a registration statement on Form S-1 or Form S-3 by the applicable deadline set forth in the Registration Rights Agreement.

Finco is filing the registration statement of which this prospectus forms a part pursuant to the foregoing registration obligation. The foregoing description of the Registration Rights Agreement is only a summary and does not purport to be complete, and such description is qualified in its entirety by reference to the full text of the Registration Rights Agreement, which is filed as an exhibit to the registration statement of which this prospectus forms a part.

Unless otherwise expressly set forth or as the context otherwise indicates, all financial information and data and accompanying financial statements and corresponding notes, as of and prior to the Effective Date, contained herein reflect the actual historical consolidated results of operations and financial condition of Legacy Noble or Finco, as applicable, for the periods presented and do not give effect to the Plan or any of the transactions contemplated thereby or the adoption of fresh start accounting, which Noble Parent and Finco adopted as of the Effective Date. Accordingly, such financial information may not be representative of Noble Parent’s or Finco’s, as applicable, performance or financial condition after the Effective Date. Except with respect to such historical financial information and data and accompanying financial statements and corresponding notes or as otherwise suggested by the context, all other information contained herein relates to Noble Parent or Finco, as applicable, following the Effective Date.

 

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ABOUT THIS PROSPECTUS

Unless we otherwise indicate, or unless the context requires otherwise, references in this prospectus to “Noble,” the “Company,” “we,” “us” and “our” refer collectively to Noble Parent and its consolidated subsidiaries, including Finco, when referring to periods following the Effective Date, and to Legacy Noble and its consolidated subsidiaries, including Finco, when referring to periods prior to the Effective Date.

This prospectus is part of a registration statement that we have filed with the Securities and Exchange Commission (the “SEC”). This prospectus provides you with a general description of us and the securities that may be offered by the selling securityholders. Because each of the selling securityholders may be deemed to be an “underwriter” within the meaning of the Securities Act, each time securities are offered by the selling securityholders pursuant to this prospectus, the selling securityholders may be required to provide you with this prospectus and, in certain cases, a prospectus supplement that will contain specific information about the selling securityholders and the terms of the securities being offered. The prospectus supplement may also add to, update or change the information contained in this prospectus. If there is any inconsistency between the information in this prospectus and any prospectus supplement, you should rely on the information in the prospectus supplement. Please carefully read this prospectus and any prospectus supplement, in addition to the information contained in the documents we refer to under the heading “Where You Can Find More Information.”

We have not, and the selling securityholders have not, authorized anyone to provide you with any information or to make any representations other than those contained in this prospectus or in any free writing prospectuses we have prepared. We and the selling securityholders take no responsibility for, and can provide no assurance as to the reliability of, any other information that others may give you. We are not, and the selling securityholders are not, making any offer to sell the Notes in any jurisdiction where the offer is not permitted. The information contained in this prospectus is accurate only as of the date on the cover of this prospectus, regardless of the time of delivery of this prospectus or of any sale of the Notes. Our business, financial condition, results of operations and prospects may have changed since such date.

We have not, and the selling securityholders have not, taken any action to permit this offering or the possession or distribution of this prospectus in any jurisdiction where action for that purpose is required, other than in the United States. Persons outside the United States who come into possession of this prospectus must inform themselves about, and observe any restrictions relating to, the offer and sale of the Notes and the distribution of this prospectus outside the United States.

This prospectus contains forward-looking statements that are subject to a number of risks and uncertainties, many of which are beyond our control. See “Risk Factors” and “Cautionary Statement Regarding Forward-Looking Statements.”

 

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PROSPECTUS SUMMARY

The following summary highlights information contained elsewhere in this prospectus, is not complete and does not contain all the information that may be important to you in making an investment decision. You should read this entire prospectus carefully, including the Explanatory Note and the information under “Risk Factors” and “Cautionary Statement Regarding Forward-Looking Statements” and the consolidated financial statements and the notes thereto appearing elsewhere in this prospectus before making an investment decision. Unless we otherwise indicate, or unless the context requires otherwise, references in this prospectus to “Noble,” the “Company,” “we,” “us” and “our” refer collectively to Noble Parent and its consolidated subsidiaries, including Finco, when referring to periods following the Effective Date, and to Legacy Noble and its consolidated subsidiaries, including Finco, when referring to periods prior to the Effective Date.

Our Company

Finco is a direct, wholly-owned and controlled subsidiary of Noble Parent. Noble is a leading offshore drilling contractor for the oil and gas industry. Noble provides contract drilling services to the international oil and gas industry with its global fleet of mobile offshore drilling units. Noble focuses on a high-specification fleet of floating and jackup rigs and the deployment of its drilling rigs in oil and gas basins around the world. The consolidated financial statements of Noble Parent have been included in this registration statement because they include the accounts of Finco and Noble Parent conducts substantially all of its business through Finco and its subsidiaries. Noble and its predecessors have been engaged in the contract drilling of oil and gas wells since 1921.

Contract Drilling Services

We report our contract drilling operations as a single reportable segment, Contract Drilling Services, which reflects how we manage our business. The mobile offshore drilling units comprising our offshore rig fleet operate in a global market for contract drilling services and are often redeployed to different regions due to changing demands of our customers, which consist primarily of large, integrated, independent and government-owned or controlled oil and gas companies throughout the world.

We typically provide contract drilling services under an individual contract, on a dayrate basis. Although each contract’s final terms and conditions are the result of negotiations with our customers, many contracts are awarded through a competitive bidding process.

During periods of depressed market conditions, such as the one we recently experienced for a number of years, our customers may attempt to renegotiate or repudiate their contracts with us although we seek to enforce our rights under our contracts. The renegotiations may include changes to key contract terms, such as pricing, termination and risk allocation.

Drilling Fleet

Noble is a leading offshore drilling contractor for the oil and gas industry. Noble owns and operates one of the most modern, versatile and technically advanced fleets of mobile offshore drilling units in the offshore drilling industry. Noble provides, through its subsidiaries, contract drilling services with a fleet of 19 offshore drilling units, consisting of 11 floaters and eight jackups at the date of this prospectus, focused largely on ultra-deepwater and high-specification drilling opportunities in both established and emerging regions worldwide. Each type of drilling rig is described further under “Business—Drilling Fleet.” At the date of this prospectus, our fleet was located in Africa, the Middle East, the North Sea, Oceania, South America and the US Gulf of Mexico.

 

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Emergence from Chapter 11

On the Petition Date, Legacy Noble and certain of its subsidiaries, including Finco, filed the Chapter 11 Cases in the Bankruptcy Court. On September 4, 2020, the Debtors filed with the Bankruptcy Court the Plan, which was subsequently amended on October 8, 2020 and October 13, 2020 and modified on November 18, 2020, and the Disclosure Statement. On September 24, 2020, six additional subsidiaries of Legacy Noble filed the Chapter 11 Cases in the Bankruptcy Court. On November 20, 2020, the Bankruptcy Court entered an order confirming the Plan. In connection with the Chapter 11 Cases and the Plan, on and prior to the Effective Date, Legacy Noble and certain of its subsidiaries effectuated certain restructuring transactions, pursuant to which Legacy Noble formed Noble Parent as an indirect, wholly-owned subsidiary of Legacy Noble and transferred to Noble Parent substantially all of the subsidiaries and other assets of Legacy Noble. On the Effective Date, the Plan became effective in accordance with its terms, the Debtors emerged from the Chapter 11 Cases and Noble Parent became the new parent company. For additional information on the financial restructuring, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Executive

Overview—Recent Events—Emergence from Chapter 11.”

On the Effective Date, pursuant to the Backstop Commitment Agreement and in accordance with the Plan, Noble Parent and Finco consummated the Rights Offering of the Notes and associated Ordinary Shares at an aggregate subscription price of $200 million. On the Effective Date, Finco issued an aggregate principal amount of $216 million of Notes. For a description of the events that occurred on the Effective Date, including the issuance of the Ordinary Shares, the Tranche 1 Warrants, the Tranche 2 Warrants and the Tranche 3 Warrants, see “Note 2—Chapter 11 Emergence” to the Audited Financial Statements included elsewhere in this prospectus. In accordance with the Plan, Legacy Noble and its remaining subsidiary will in due course be wound down and dissolved in accordance with applicable law. The Bankruptcy Court closed the Chapter 11 Cases with respect to all Debtors other than Legacy Noble, pending its wind down.

Pacific Drilling Merger

On March 25, 2021, Noble Parent entered into an Agreement and Plan of Merger (the “Pacific Drilling Merger Agreement”) with Duke Merger Sub, LLC, a wholly-owned subsidiary of Noble Parent (“Duke Merger Sub”), and Pacific Drilling Company LLC (“Pacific Drilling”), providing for the merger of Duke Merger Sub with and into Pacific Drilling (the “Pacific Drilling Merger”), with Pacific Drilling continuing as the surviving company and a wholly-owned subsidiary of Noble Parent. The board of directors of Noble Parent (the “Board”) and the board of directors of Pacific Drilling unanimously approved and adopted the Pacific Drilling Merger Agreement.

On April 15, 2021, Noble Parent completed the Pacific Drilling Merger with Pacific Drilling. In connection with the Pacific Drilling Merger, and pursuant to the terms and conditions set forth in the Pacific Drilling Merger Agreement, (a) each membership interest in Pacific Drilling (the “Membership Interests”) was converted into the right to receive 6.366 Ordinary Shares and (b) each of Pacific Drilling’s warrants outstanding immediately prior to the effective time of the Pacific Drilling Merger (the “Pacific Warrants”) was converted into the right to receive 1.553 Ordinary Shares. As part of the transaction, Pacific Drilling’s equity holders received 16,600,140 Ordinary Shares.

Upon completion of the Pacific Drilling Merger, Noble Parent contributed Pacific Drilling to Finco and designated Pacific Drilling and its subsidiaries as unrestricted subsidiaries pursuant to the Revolving Credit Facility (as defined herein) and the Notes. Subsequent to that contribution and designation, Pacific Drilling S.A. was sold to NEC Holdings Limited and became a restricted subsidiary and a subsidiary guarantor of the Revolving Credit Facility and the Notes. Neither Pacific Drilling nor any of its current subsidiaries is a subsidiary guarantor of the Revolving Credit Facility or the Notes, and none of their assets secure the Revolving Credit Facility or the Notes.

 

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Business Combination with Maersk Drilling

On November 10, 2021, Noble Parent entered into a Business Combination Agreement (the “Business Combination Agreement”) with Noble Finco Limited, a private limited company formed under the laws of England and Wales and an indirect, wholly owned subsidiary of Noble Parent (“Topco”), Noble Newco Sub Limited, a Cayman Islands exempted company and a direct, wholly owned subsidiary of Topco (“Merger Sub”), and The Drilling Company of 1972 A/S, a Danish public limited liability company (“Maersk Drilling” or, together with its subsidiaries, the “Maersk Drilling Group”), pursuant to which, among other things, (i) (x) Noble Parent will merge with and into Merger Sub (the “Maersk Drilling Merger”), with Merger Sub surviving the Maersk Drilling Merger as a wholly owned subsidiary of Topco, and (y) the Ordinary Shares will convert into an equivalent number of class A ordinary shares, par value $0.00001 per share, of Topco (the “Topco Shares”), and (ii) (x) Topco will make a voluntary tender exchange offer to Maersk Drilling’s shareholders as described below (the “Offer” and, together with the Maersk Drilling Merger and the other transactions contemplated by the Business Combination Agreement, the “Business Combination”) and (y) upon the consummation of the Offer, if more than 90% of the issued and outstanding shares of Maersk Drilling, nominal value Danish krone (“DKK”) 10 per share (“Maersk Drilling Shares”), are acquired by Topco, Topco will redeem any Maersk Drilling Shares not exchanged in the Offer by Topco for, at the election of the holder, either Topco Shares or cash (or, for those holders that do not make an election, only cash), under Danish law by way of a compulsory purchase (the “Compulsory Purchase”). The Board and the board of directors of Maersk Drilling have unanimously approved and adopted the Business Combination Agreement. The Business Combination is subject to Noble Parent shareholder approval, acceptance of the Offer by holders of at least 80% of Maersk Drilling Shares, merger clearance and other regulatory approvals, listing on the New York Stock Exchange (the “NYSE”) and Nasdaq Copenhagen A/S (“Nasdaq Copenhagen”) and other customary conditions.

Following the closing of the Business Combination, assuming all of the Maersk Drilling Shares are acquired by Topco through the Offer and no cash is paid by Topco in the Offer, Topco will own all of Noble Parent’s and Maersk Drilling’s respective businesses and the former shareholders of Noble Parent and former shareholders of Maersk Drilling will each own approximately 50% of the outstanding Topco Shares. Topco will acquire a majority of the Maersk Drilling Shares following the closing of the Offer and it is possible that Topco will directly or indirectly own other assets and conduct other activities in the future at the discretion of Topco management. Topco will be renamed Noble Corporation Plc, will be a public limited company domiciled (tax resident) in the United Kingdom and will be headquartered in Houston, Texas. Topco is expected to have certain management functions relating to the holding of shares, financing, cash management, incentive compensation and other relevant holding company functions. The board of directors of Topco (the “Topco Board”) will initially be comprised of seven individuals: three individuals designated by Maersk Drilling (Claus V. Hemmingsen, the current Chairman of Maersk Drilling’s board of directors (the “Maersk Drilling Board”), Kristin H. Holth and Alastair Maxwell), three individuals designated by Noble Parent (Charles M. (Chuck) Sledge, the current Chairman of the Board of Noble Parent, who will become Chairman of the combined company, Alan J. Hirshberg and Ann D. Pickard) and Robert W. Eifler, the Chief Executive Officer of Noble Parent, who will serve as the Chief Executive Officer of the combined company.

Topco will apply to have the Topco Shares listed on the NYSE and on Nasdaq Copenhagen.

At the effective time of the Maersk Drilling Merger (the “Maersk Drilling Merger Effective Time”), subject to the terms and conditions set forth in the Business Combination Agreement, (i) each Ordinary Share of Noble Parent issued and outstanding immediately prior to the Maersk Drilling Merger Effective Time will be converted into one newly and validly issued, fully paid and non-assessable Topco Share, (ii) each ordinary share purchase warrant to

purchase Ordinary Shares (each, a “Penny Warrant”) outstanding immediately prior to the Maersk Drilling Merger Effective Time will cease to represent the right to acquire Ordinary Shares and will be automatically cancelled, converted into and exchanged for a number of Topco Shares equal to the number of Ordinary Shares

 

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underlying such Penny Warrant, rounded to the nearest whole share, and (iii) each Emergence Warrant outstanding immediately prior to the Maersk Drilling Merger Effective Time will be converted automatically into a warrant to acquire a number of Topco Shares equal to the number of Ordinary Shares underlying such Emergence Warrant, with the same terms as were in effect immediately prior to the Maersk Drilling Merger Effective Time under the terms of the applicable warrant agreement (each, a “Topco Warrant”). In addition, each award of restricted share units representing the right to receive Ordinary Shares, or value based on the value of Ordinary Shares (each, a “Noble RSU Award”) that is outstanding immediately prior to the Maersk Drilling Merger Effective Time will cease to represent a right to acquire Ordinary Shares (or value equivalent to Ordinary Shares) and will be exchanged for restricted share units representing the right to acquire, on the same terms and conditions as were applicable under the Noble RSU Award (including any vesting conditions), that number of Topco Shares equal to the number of Ordinary Shares subject to such Noble RSU Award immediately prior to the Maersk Drilling Merger Effective Time.

Subject to the terms and conditions set forth in the Business Combination Agreement, following the approval of certain regulatory filings with the Danish Financial Supervisory Authority (the “DFSA”), Topco has agreed to commence the Offer to acquire up to 100% of the then outstanding Maersk Drilling Shares and voting rights of Maersk Drilling, not including any treasury shares held by Maersk Drilling. The Offer is conditioned upon, among other things, holders of at least 80% of the then outstanding Maersk Drilling Shares and voting rights of Maersk Drilling tendering their shares in the Offer (which percentage may be lowered by Topco in its sole discretion to not less than 70%) (the “Minimum Acceptance Condition”). In the Offer, Maersk Drilling shareholders may exchange each Maersk Drilling Share for 1.6137 newly and validly issued, fully paid and non-assessable Topco Shares (the “Exchange Ratio”), and will have the ability to elect cash consideration for up to $1,000 of their Maersk Drilling Shares (payable in DKK), subject to an aggregate cash consideration cap of $50 million. A Maersk Drilling shareholder electing to receive the cash consideration will receive, as applicable, (i) $1,000 for the applicable portion of their Maersk Drilling Shares, or (ii) the amount corresponding to the total holding of their Maersk Drilling Shares if such holding of Maersk Drilling Shares represents a value of less than $1,000 in the aggregate, subject to any reduction under the cap described in the preceding sentence. A Maersk Drilling shareholder holding Maersk Drilling Shares exceeding a value of $1,000 in the aggregate cannot elect to receive less than $1,000 in cash consideration if the cash consideration in lieu of Topco Shares is elected. Each of Maersk Drilling and Topco will take steps to procure that each Maersk Drilling restricted stock unit award (a “Maersk Drilling RSU Award”) that is outstanding immediately prior to the acceptance time of the Offer (the “Acceptance Time”) is exchanged, at the Acceptance Time, with the right to receive, on the same terms and conditions as were applicable under the Maersk Drilling RSU Long-Term Incentive Programme for Executive Management 2019 and the Maersk Drilling RSU Long-Term Incentive Programme 2019 (together, the “Maersk Drilling LTI”) (including any vesting conditions), that number of Topco Shares equal to the product of (1) the number of Maersk Drilling Shares subject to such Maersk Drilling RSU Award immediately prior to the Acceptance Time and (2) the Exchange Ratio, with any fractional Maersk Drilling Shares rounded to the nearest whole share. Upon such exchange, such Maersk Drilling RSU Awards will cease to represent a right to receive Maersk Drilling Shares (or value equivalent to Maersk Drilling Shares).

The Business Combination Agreement contains customary warranties and covenants by Noble Parent, Topco, Merger Sub and Maersk Drilling. The Business Combination Agreement also contains customary pre-closing covenants.

Topco’s obligation to accept for payment or, subject to any applicable rules and regulations of Denmark, pay for any Maersk Drilling Shares that are validly tendered in the Offer and not validly withdrawn prior to the expiration of the Offer is subject to certain customary conditions, including, among others, that the Minimum Acceptance Condition shall have been satisfied. Maersk Drilling may require that Topco does not accept for payment or, subject to any applicable rules and regulations of Denmark, pay for the Maersk Drilling Shares that are validly tendered in the Offer and not validly withdrawn prior to the expiration of the Offer if certain

 

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customary conditions are not met. Subject to the satisfaction or waiver of the conditions set forth in the Business Combination Agreement, the Business Combination is expected to close in mid-2022.

The Business Combination Agreement contains certain termination rights for both Noble Parent and Maersk Drilling.

None of the Maersk Drilling assets will secure the Revolving Credit Facility or the Notes upon the closing of the Business Combination.

Irrevocable Undertaking

Concurrently with the entry into the Business Combination Agreement, APMH Invest A/S (“APMH Invest”), which holds approximately 41.6% of the issued and outstanding Maersk Drilling Shares, entered into an irrevocable undertaking (the “Undertaking”) with Noble Parent, Topco and Maersk Drilling, pursuant to which APMH Invest has, among other things, agreed to (a) accept the Offer in respect of the Maersk Drilling Shares that it owns and not withdraw such acceptance; (b) waive the right to receive any cash consideration in the Offer; (c) not vote in favor of any resolution to approve a competing alternative proposal; and (d) subject to certain exceptions, be bound by certain transfer restrictions with respect to the Maersk Drilling Shares that it owns. The Undertaking will lapse if (i) the Business Combination Agreement is terminated in accordance with its terms; (ii) Topco announces that it does not intend to make or proceed with the Business Combination; or (iii) the Offer lapses or is withdrawn and no new, revised or replacement offer is announced within 10 business days.

Letters of Intent

In addition, certain other Maersk Drilling shareholders, together holding approximately 12% of the issued and outstanding Maersk Drilling Shares, have delivered letters of intent expressing their intention to accept or procure the acceptance of the Offer in respect of the Maersk Drilling Shares that they own.

Maersk Drilling Voting Agreements

Concurrently with the entry into the Business Combination Agreement, Noble Parent and Maersk Drilling entered into voting agreements (collectively, the “Maersk Drilling Voting Agreements”) with certain Noble Parent shareholders (each, a “Noble Supporting Shareholder”), which collectively held approximately 53% of the issued and outstanding Ordinary Shares as of the date of the Maersk Drilling Voting Agreements. Pursuant to the Maersk Drilling Voting Agreements, each Noble Supporting Shareholder has, among other things, agreed to (a) consent to and vote (or cause to be voted) its Ordinary Shares (i) in favor of all matters, actions and proposals contemplated by the Business Combination Agreement for which Noble Parent shareholder approval is required and any other matters, actions or proposals required to consummate the Business Combination in accordance with the Business Combination Agreement, and (ii) among other things, against any competing alternative proposal; (b) be bound by certain other covenants and agreements relating to the Business Combination; and (c) subject to certain exceptions, be bound by certain transfer restrictions with respect to a portion of their securities. The Maersk Drilling Voting Agreements will terminate upon the earliest to occur of (x) the date that is ten months from the date of the Maersk Drilling Voting Agreements, (y) the closing date of the Business Combination and (z) the termination of the Business Combination Agreement pursuant to its terms. Notwithstanding the foregoing, each Noble Supporting Shareholder will have the right to terminate the applicable Maersk Drilling Voting Agreement if the Business Combination Agreement has been amended in a manner that materially and adversely affects such Noble Supporting Shareholder (including, without limitation, a reduction of the economic benefits to the Noble Supporting Shareholders contemplated thereby or an extension of the End Date (as defined herein) beyond the date (as such date may be extended) set forth in the Business Combination Agreement).

 

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New Relationship Agreement

At the closing of the Business Combination, Topco will enter into a Relationship Agreement (the “New Relationship Agreement”) with certain funds and accounts (the “Existing Noble Investor”) party to the Bankruptcy Relationship Agreement (as defined herein) and APMH Invest, which will set forth certain director designation rights of such Topco shareholders following the closing of the Business Combination. In particular, pursuant to the New Relationship Agreement, each of the Existing Noble Investor and APMH Invest will be entitled to designate (a) two nominees to the Topco Board so long as the Existing Noble Investor or APMH Invest, as applicable, owns no fewer than 20% of the then outstanding Topco Shares and (b) one nominee to the Topco Board so long as the Existing Noble Investor or APMH Invest, as applicable, owns fewer than 20% but no fewer than 15% of the then outstanding Topco Shares. Each nominee of the Existing Noble Investor and APMH Invest will meet the independence standards of the NYSE with respect to Topco; provided, however, that APMH Invest shall be permitted to have one nominee who does not meet such independence standards so long as such nominee is not an employee of Topco or any of its subsidiaries.

Maersk Drilling Merger Registration Rights Agreement

At the closing of the Business Combination, Topco will enter into a Registration Rights Agreement (the “Maersk Drilling Merger RRA”) with APMH Invest pursuant to which, among other things, and subject to certain limitations set forth therein, APMH Invest will have customary demand and piggyback registration rights. In addition, pursuant to the Maersk Drilling Merger RRA, APMH Invest will have the right to require Topco, subject to certain limitations set forth therein, to effect a distribution of any or all of its Topco Shares by means of an underwritten offering. Topco is not obligated to effect any underwritten offering unless the dollar amount of the securities of APMH Invest to be sold is reasonably likely to result in gross sale proceeds of at least $20 million.

Regulatory Approvals

Antitrust Considerations

To complete the Business Combination pursuant to the terms of the Business Combination Agreement, Noble Parent and Maersk Drilling must make filings with and obtain authorizations, approvals or consents from a number of antitrust regulatory authorities, including the United Kingdom Competition and Markets Authority (the “UK CMA”) and the Norwegian Competition Authority (Konkurransetilsynet or “NCA”). The parties have also agreed, among other things, to (i) file (in draft form where applicable) as promptly as practicable any required filings and/or notifications under applicable antitrust laws or under foreign direct investment laws, with respect to the transactions contemplated by the Business Combination Agreement, including using all reasonable endeavors to submit a merger notice (meldung) to the NCA pursuant to §18 and compliant with §18a of the Competition Act (Konkurranseloven) (Norway) by no later than January 14, 2022 and to submit a merger notice that complies with section 96(2) of the Enterprise Act 2002 (UK) to the UK CMA by no later than February 11, 2022, and use all reasonable endeavors to cause the expiration or termination of any applicable waiting periods and to obtain all necessary approvals or clearances (including clearance from the UK CMA) under any antitrust law or under foreign direct investment laws, and (ii) take, or cause to be taken, all other actions and do, or cause to be done, all other things necessary, proper or advisable to consummate and make effective the transactions contemplated by the Business Combination Agreement, and to avoid or eliminate each and every impediment under any law that may be asserted by any governmental entity with respect to the transactions contemplated by the Business Combination Agreement so as to enable the closing of the Business Combination to occur as soon as reasonably possible (and in any event no later than the End Date).

In accordance with the Business Combination Agreement, the parties have submitted the applicable merger notices to the relevant governmental authorities, including the NCA and the UK CMA. The Business

 

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Combination has been unconditionally approved by the competition authorities in Brazil, Norway, and the Republic of Trinidad & Tobago. Accordingly, the only outstanding pre-closing merger control clearances are in Angola and the UK. The parties expect the competition authority in Angola to unconditionally approve the Business Combination during April 2022.

The merger control process for obtaining clearance in the UK remains ongoing with constructive discussions continuing between Noble Parent, Maersk Drilling, and the UK CMA ahead of the UK CMA expectedly publishing their phase 1 decision on April 22, 2022. While the UK CMA is yet to take its phase 1 decision, the parties expect that it will be necessary to divest certain jackup rigs currently located in the North Sea (the “Remedy Rigs”) to obtain conditional antitrust clearance in phase 1 from the UK CMA. The parties currently expect the Remedy Rigs to comprise the Noble Hans Deul, Noble Sam Hartley, Noble Sam Turner, Noble Houston Colbert, and a CJ-70 design drilling rig which, at this point, the parties believe is likely to be the Mærsk Innovator, although it is possible the Noble Lloyd Noble could be required to achieve phase 1 clearance. On this basis, the parties have started to examine different options to divest the Remedy Rigs. Though the parties expect that they will be required to divest the Remedy Rigs in order to gain UK CMA clearance, the duration and outcome of the UK CMA review process remains uncertain.

Please see “Risk Factors—Risks Related to the Business Combination with Maersk Drilling—The Business Combination is conditioned on the receipt of certain required approvals and governmental and regulatory consents, which, if delayed, not granted or granted with unfavorable conditions, may delay or jeopardize the completion of the Business Combination, result in additional expenditures of money and resources and/or reduce the anticipated benefits of the Business Combination.”

Foreign Investment Screening Considerations

To complete the Business Combination pursuant to the terms of the Business Combination Agreement, Noble Parent and Maersk Drilling must also make filings with and obtain authorizations, approvals or consents pursuant to the UK National Security and Investment Act 2021, and the Danish Act on Screening of Certain Foreign Direct Investments (Act no. 842 of 10 May 2021). On January 26, 2022, the Danish Business Authority’s (DBA) determined that the Business Combination does not require prior authorization under the Danish Act on Screening of Certain Foreign Direct Investments (Act no. 842 of 10 May 2021) or associated regulations. On March 2, 2022, the Secretary of State of the United Kingdom determined that it would not take any action in relation to the Business Combination in accordance with section 14 of the National Security and Investment Act 2021. No other approvals relating to foreign direct investment are required.

Risk Factors

Investing in the Notes involves risks associated with our business, operating results and financial condition. You should carefully read “Risk Factors” and “Cautionary Statement Regarding Forward-Looking Statements” in this prospectus for an explanation of these risks before investing in the Notes. These risks include, among others, the following:

 

  

risks related to the Notes, including the following:

 

  

the indenture governing the Notes contains operating and financial restrictions;

 

  

the value of the Collateral (as defined herein) on the Notes may not be sufficient to ensure repayment of the Notes, and it may be difficult to realize the value of the Collateral securing the Notes and the guarantees;

 

  

the liens on the Collateral securing the Notes and the guarantees thereof are junior and subordinate to the liens on the Collateral securing priority lien debt;

 

  

interest on the Notes may be paid in PIK interest;

 

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risks related to our business and operations, including the following:

 

  

our business depends on the level of activity in the oil and gas industry;

 

  

the impact of the coronavirus (“COVID-19”) pandemic;

 

  

the offshore contract drilling industry is a highly competitive and cyclical business;

 

  

the over-supply of offshore rigs;

 

  

our ability to renew or replace existing contracts;

 

  

our current backlog of contract drilling revenue may not be ultimately realized;

 

  

our substantial dependence on several of our customers;

 

  

risks relating to operations in international locations;

 

  

our and our service providers’ failure to adequately protect sensitive information technology systems and critical data;

 

  

our failure to attract and retain skilled personnel;

 

  

supplier capacity constraints or shortages in parts or equipment or price increases;

 

  

risks associated with future mergers, acquisitions or dispositions of businesses or assets;

 

  

inflation may adversely affect our operating results;

 

  

we are a holding company, and we are dependent upon cash flow from subsidiaries to meet our obligations;

 

  

the warrants Noble Parent issued pursuant to the Plan are exercisable for Ordinary Shares;

 

  

future sales or the availability for sale of substantial amounts of the Ordinary Shares could adversely affect the trading price of the Ordinary Shares;

 

  

the potential for US Gulf of Mexico hurricane related windstorm damage or liabilities;

 

  

risks related to the Pacific Drilling Merger, including the following:

 

  

the integration of Pacific Drilling into the combined company may not be as successful as anticipated, and the combined company may not achieve the intended benefits;

 

  

financial and tax risks related to Noble, including the following:

 

  

we may record impairment charges on property and equipment;

 

  

the Revolving Credit Agreement (as defined herein) contains various restrictive covenants limiting the discretion of our management in operating our business;

 

  

the impact of a loss of a major tax dispute or a successful tax challenge to our operating structure, intercompany pricing policies or the taxable presence of our subsidiaries in certain countries on our tax rate on our worldwide earnings;

 

  

regulatory and legal risks related to Noble, including the following:

 

  

the impact of governmental laws and regulations on our costs and drilling activity;

 

  

increasing attention to environmental, social and governance matters and climate change;

 

  

changes in, compliance with or our failure to comply with certain laws and regulations;

 

  

compliance with laws and regulations relating to the protection of the environment and of human health and safety;

 

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we are subject to litigation;

 

  

risks related to the Business Combination with Maersk Drilling, including the following:

 

  

the Business Combination may not be as successful as anticipated, and the combined company may not achieve the intended benefits;

 

  

the Business Combination remains subject to conditions that neither Noble Parent nor Maersk Drilling can control;

 

  

each of Noble and Maersk Drilling may have liabilities that are not known to the other party;

 

  

our failure to consummate the Business Combination;

 

  

Noble Parent shareholders and Maersk Drilling shareholders will have a reduced ownership and voting interest after the Business Combination;

 

  

future sales or the availability for sale of substantial amounts of the Topco Shares could adversely affect the trading price of the Topco Shares;

 

  

risks related to Topco and its business, including the following:

 

  

direct and indirect costs incurred as a result of the Business Combination;

 

  

failure to recruit and retain key personnel;

 

  

Topco may not be able to retain customers or suppliers, and customers or suppliers may seek to modify contractual obligations with Topco;

 

  

Topco’s actual financial position and results of operations may differ materially from the unaudited pro forma financial information included elsewhere in this prospectus;

 

  

changes to U.S., UK, Cayman and other non-U.S. tax laws;

 

  

the rights of holders of Topco Shares to be received by Noble Parent shareholders in connection with the Business Combination will be different from the rights of holders of Ordinary Shares due to the difference between Cayman and English law;

 

  

the market price of Topco Shares may be volatile; and

 

  

risks related to Maersk Drilling Group’s business and operations, financial risks related to the Maersk Drilling Group and legal and regulatory risks related to the Maersk Drilling Group.

Our Offices

Finco’s principal executive offices are located at 13135 Dairy Ashford, Suite 800, Sugar Land, Texas 77478, and its telephone number at that address is (281) 276-6100. Our website address is http://www.noblecorp.com. The information contained on or linked to or from our website is not part of, and is not incorporated by reference into, this prospectus or the registration statement of which this prospectus forms a part, and you should not consider such information part of this prospectus or rely on any such information in making your decision whether to purchase the Notes.

 

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The Notes

The following summary contains basic information about the Notes and is not intended to be complete. It does not contain all information that may be important to you. For a more complete understanding of the Notes, see “Description of the Notes” in this prospectus. For purposes of the description of the Notes included in this prospectus under this section and the “Description of the Notes,” references to (i) the “notes” refer to the 11%/ 13%/ 15% Senior Secured PIK Toggle Notes due 2028, (ii) the “PIK notes” refer to additional notes that may be that may be issued if interest on the notes is paid-in-kind through maturity and (iii) “NFC,” the “Company,” “we,” “us” and “our” refer only to Noble Finance Company and do not include any of its subsidiaries. Capitalized terms used and not defined in this section have the meaning given them in the “Description of the Notes.”

 

Issuer

Noble Finance Company, an exempted company incorporated in the Cayman Islands with limited liability.

 

Notes to be Offered by the Selling Securityholders

$404,867,813 aggregate principal amount of 11%/ 13%/ 15% Senior Secured PIK Toggle Notes due 2028, including up to $298,464,394 aggregate principal amount of notes that may be issued if interest on the notes is paid-in-kind through maturity.

 

Maturity Date

The notes will mature on February 15, 2028.

 

Interest

The notes bear interest, at our option for each interest payment date, at the per annum rates of (i) 11% payable in cash, (ii) 13%, with 6.5% per annum of such interest to be payable in cash and 6.5% per annum of such interest to be payable by issuing PIK notes, or (iii) 15%, with the entirety of such interest to be payable by issuing PIK notes. Interest on the notes will be paid semi-annually, in arrears, on February 15 and August 15, commencing August 15, 2021, to the holders of record at the close of business on the February 1 and August 1 immediately preceding the applicable interest payment date. Interest on the notes will be computed on the basis of a 360-day year of twelve 30-day months. See “Description of the Notes—General.”

 

Ranking

The notes:

 

  

rank equally in right of payment with all future senior indebtedness of the Company but, to the extent the value of the Collateral exceeds the aggregate amount of all Priority Lien Debt, are effectively senior to all of the Company’s unsecured senior indebtedness;

 

  

rank senior in right of payment to any existing and future subordinated obligations of the Company;

 

  

are effectively junior to any obligations of the Company that are either (i) secured by a Lien on the Collateral that is senior or prior to the Liens securing the notes, including the Permitted Liens securing Priority Lien Debt, and to other Permitted Liens, or (ii) secured with property or assets that do not constitute Collateral to the extent of the value of the assets securing such Indebtedness; and

 

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are structurally subordinated to all future Indebtedness, claims of holders of Preferred Stock and other liabilities of the Company’s Subsidiaries that do not guarantee the notes (but if a Pledgor that is not a guarantor has pledged the Capital Stock of a guarantor to secure the notes, then such pledge will be senior to the Preferred Stock and other liabilities of such Pledgor).

 

Optional Redemption

Within 120 days of any Change of Control, we (or the successor entity following such Change of Control) may redeem for cash all (but not less than all) of the outstanding notes, at a redemption price, if the redemption is (x) prior to (but not including) February 15, 2024, equal to the sum of (1) 106% of the principal amount of the notes to be redeemed plus (2) accrued and unpaid interest, if any, to, but excluding, the redemption date or (y) on or after February 15, 2024, equal to the redemption price applicable to the notes (expressed as a percentage of the principal amount of the notes to be redeemed) if redeemed during the 12-month period beginning on February 15, 2024 of the years indicated in the second immediately following paragraph.

 

 Prior to February 15, 2024, we will be entitled at our option to redeem the notes, in whole or in part, at a redemption price equal to 106% of the principal amount of the notes plus the Applicable Premium as of, and accrued and unpaid interest, if any, to, but excluding, the redemption date (subject to the right of holders on the relevant record date to receive interest due on the relevant interest payment date).

 

 The redemption price for the notes to be redeemed on any redemption date that is on or after February 15, 2024 will be equal to the applicable percentage set forth below of the principal amount of the notes, plus accrued and unpaid interest thereon, if any, to, but excluding, the date of redemption (subject to the right of holders on the relevant record date to receive interest due on the relevant interest payment date) if redeemed during the 12-month period beginning on February 15 of the years indicated below:

 

YEAR

  

PERCENTAGE

2024

  106.000%

2025

  104.000%

2026

  102.000%

2027 and thereafter

  100.000%

 

 See “Description of the Notes—Optional Redemption.”

 

Tax Redemption

The notes will be subject to redemption at any time, in whole but not in part, at a redemption price, if the redemption is (x) prior to (but not including) February 15, 2024, equal to 106% of the principal amount of the notes to be redeemed or (y) on or after February 15, 2024, equal to the redemption price applicable to the notes (expressed as a percentage of the principal amount of notes to be redeemed), in each

 

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case together with accrued and unpaid interest to, but not including, the Tax Redemption Date, plus all Additional Amounts then due or which will become due on the Tax Redemption Date as a result of the redemption or otherwise, if on the next date on which any amount would be payable in respect of the notes, we are or would be required to pay Additional Amounts, and we cannot avoid any such payment obligation by taking reasonable measures available (including, for the avoidance of doubt, appointment of a new paying agent but excluding the reincorporation or reorganization of the Company), and the requirement arises as a result of a Change in Tax Law.

 

 See “Description of the Notes—Tax Redemption.”

 

Guarantees

The notes are guaranteed on a senior secured basis by each subsidiary guarantor. The notes guarantees of the notes by each subsidiary guarantor:

 

  

are a senior obligation of such subsidiary guarantor;

 

  

are secured by a second-priority security interest in the Collateral (subject to Permitted Liens) owned by such subsidiary guarantor;

 

  

rank equally in right of payment with all future senior indebtedness of such subsidiary guarantor but, to the extent the value of the Collateral exceeds the aggregate amount of all Priority Lien Debt, are effectively senior to all of such subsidiary guarantor’s unsecured senior indebtedness;

 

  

rank senior in right of payment to any existing and future subordinated obligations of such subsidiary guarantor; and

 

  

are effectively junior to any obligations of such subsidiary guarantor that are either (i) secured by a Lien on the Collateral that is senior or prior to the Liens securing such subsidiary guarantor’s notes guarantee, including the Permitted Liens, or (ii) secured with property or assets that do not constitute Collateral to the extent of the value of the assets securing such Indebtedness.

 

 Neither Pacific Drilling nor any of its current subsidiaries is a subsidiary guarantor of the Revolving Credit Facility or the notes, and none of their assets secure the Revolving Credit Facility or the notes. In addition, none of the Maersk Drilling assets will secure the Revolving Credit Facility or the notes upon the closing of the Business Combination.

 

 See “Description of the Notes—General” and “Description of the Notes—Notes Guarantee.”

 

Collateral

The notes and the notes guarantees are secured by second-priority security interests (subject to Permitted Liens) in the Collateral. Subject to the terms described under “Description of the Notes—Collateral—Release,” the Collateral consists of substantially all of the property and assets of the Company and the subsidiary guarantors, other than Excluded Property, and the pledge of the Capital Stock of

 

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the Company and some or all of the Capital Stock of certain subsidiary guarantors. See “Description of the Notes—Collateral.”

 

 The Collateral does not include any assets of, or equity interests in, Pacific Drilling or any of its current subsidiaries. In addition, the Collateral does not include any assets of Maersk Drilling.

 

Certain Covenants

The indenture governing the notes restricts our ability and the ability of our restricted subsidiaries to, among other things:

 

  

incur or guarantee additional indebtedness or issue preferred stock;

 

  

pay dividends or make other distributions on account of capital stock;

 

  

purchase or redeem capital stock or subordinated indebtedness;

 

  

make investments;

 

  

create liens;

 

  

enter into agreements that restrict the ability of our restricted subsidiaries to pay dividends or make other payments to us;

 

  

sell assets;

 

  

consolidate or merge with or into other companies or transfer all or substantially all of our assets; and

 

  

engage in transactions with affiliates.

 

 These limitations will be subject to a number of important qualifications and exceptions. See “Description of the Notes—Certain Covenants.”

 

OID

Because the notes provide the issuer with the option to pay interest in the form of additional notes (the PIK notes) in lieu of paying cash interest, the notes will be treated as having been issued with original issue discount for U.S. federal income tax purposes. As a result, a holder of a note who is subject to U.S. federal income tax is generally required to pay U.S. federal income tax on accrual of original issue discount on the notes. See “Material U.S. Federal Income Tax Considerations” for more information.

 

Use of Proceeds

We will not receive any proceeds from the sale of the notes by the selling securityholders pursuant to this prospectus. See “Use of Proceeds.”

 

Absence of a Public Market

There is currently no established public trading market for the notes, and there can be no assurance that a public trading market will develop.

 

Risk Factors

Investing in the notes involves significant risks. You should carefully read and consider the information beginning on page 14 of this prospectus under “Risk Factors” and all other information in this prospectus before deciding to invest in the notes.

 

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RISK FACTORS

Investing in the Notes involves significant risks. Before making an investment decision, you should carefully consider the specific risk factors set forth below, together with the other information included elsewhere in this prospectus. The risk factors set forth below include risks related to the Business Combination, Topco and its business and Maersk Drilling’s business, some of which may not be applicable if the Business Combination is not consummated. If any of the risks discussed in this prospectus occur, our business, prospects, liquidity, financial condition and results of operations could be materially impaired, in which case the price of the Notes could decline significantly and you could lose all or part of your investment. Some statements in this prospectus, including statements in the following risk factors, constitute forward-looking statements. See “Cautionary Statement Regarding Forward-Looking Statements.”

Risks Related to the Notes

The indenture governing the Notes contains operating and financial restrictions that may restrict Finco’s business and financing activities.

The primary restrictive covenants contained in the indenture under which the Notes were issued limit Finco’s ability and the ability of certain of its subsidiaries to pay dividends or make other distributions or repurchase or redeem its capital stock and certain indebtedness, create liens securing certain indebtedness, incur certain indebtedness, consolidate, merge or transfer all or substantially all of its properties and assets, enter into transactions with affiliates and dispose of assets and use proceeds from the dispositions of assets.

Finco’s ability to comply with the covenants and restrictions contained in the indenture governing the Notes may be affected by events beyond its control. If market or other economic conditions deteriorate, Finco’s ability to comply with these covenants and restrictions may be impaired. A failure to comply with the covenants, ratios or tests in the indenture governing the Notes, if not cured or waived, could have a material adverse effect on Finco’s business, financial condition and results of operations. Finco’s existing and future indebtedness may have cross-default and cross-acceleration provisions. Upon the triggering of any such provision, the relevant creditor may:

 

  

not be required to lend any additional amounts to Finco;

 

  

elect to declare all borrowings outstanding due to them, together with accrued and unpaid interest and fees, to be due and payable (and, with respect to Finco’s secured indebtedness, foreclose on the collateral securing such indebtedness);

 

  

elect to require that all obligations accrue interest at the default rate provided therein, if such rate has not already been imposed;

 

  

have the ability to require Finco to apply all of its available cash to repay such borrowings; and/or

 

  

prevent Finco from making debt service payments under its other agreements,

any of which could result in an event of default under the Notes.

If any of Finco’s existing indebtedness were to be accelerated, there can be no assurance that it would have, or be able to obtain, sufficient funds to repay such indebtedness in full. Even if new financing were available, it may be on terms that are less attractive to Finco than the Revolving Credit Facility or the Notes or it may not be on terms that are acceptable to Finco. For additional information, see “Description of the Notes.”

The value of the Collateral securing the Notes may not be sufficient to ensure repayment of the Notes because the holders of obligations under the Revolving Credit Facility and other first-priority lien obligations will be paid first from the proceeds of the Collateral. It may be difficult to realize the value of the Collateral securing the Notes and the guarantees.

Finco’s indebtedness and other obligations under the Revolving Credit Facility and other priority lien debt are secured by a first-priority lien on the Collateral securing the Notes and the guarantees thereof. The liens

 

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securing the Notes and the guarantees thereof are effectively junior to the liens securing obligations under the Revolving Credit Facility and other priority lien obligations, so that proceeds of the Collateral will be applied first to repay those first lien obligations before any such proceeds are applied to pay any amounts due on the Notes. Accordingly, if Finco defaults on the Notes, Finco cannot assure you that the collateral agent would receive enough money from the sale of the Collateral to repay you. In addition, Finco has specified rights to issue additional notes (including Notes used to pay PIK interest) and other parity lien obligations that would be secured by liens on the Collateral on an equal and ratable basis with the Notes. See “—The Collateral securing the Notes and related guarantees may be diluted under certain circumstances.” If the proceeds of any sale of the Collateral are not sufficient to repay all amounts due on the Notes and any other parity lien obligations, then your claims against Finco’s remaining assets to repay any amounts still outstanding under the Notes would be unsecured. The Revolving Credit Facility permits Finco to incur additional indebtedness thereunder, and the indenture governing the Notes permits Finco to incur additional obligations secured by liens that have priority over the Notes in certain circumstances, as well as incur additional obligations secured by liens with the same priority as the liens securing the Notes.

By their nature, some or all of the pledged assets may be illiquid and may have no readily ascertainable market value. Accordingly, the Collateral may not be sold in a short period of time, if at all. In addition, a portion of the Collateral includes assets that may only be usable, and thus retain value, as part of Finco’s existing operating businesses. Finco also cannot assure you that the fair market value of the Collateral will exceed the principal amount of the debt secured thereby. Additionally, the value of the assets to be pledged as Collateral for the Notes and the guarantees could be impaired in the future as a result of changing economic conditions, commodity prices, environmental concerns, Finco’s failure to implement its business strategy, competition and other future trends. Any claim for the difference between the amount, if any, realized by holders of the Notes from the sale of the Collateral securing the Notes and the guarantees thereof will rank equal in right of payment with all of Finco’s other unsecured unsubordinated indebtedness and other obligations, including accounts payable. Additionally, in the event that a bankruptcy case is commenced by or against Finco, if the value of the Collateral is less than the amount of principal and accrued and unpaid interest on the Notes and all other obligations secured thereby on a priority and pari passu basis, holders of Notes would not be entitled to receive, among other things, post-petition interest, fees or expenses or adequate protection on account of any “undersecured” portion of their claims. Likewise, Finco cannot assure you that the pledged assets will be saleable or, if saleable, that there will not be substantial delays in their liquidation.

In addition, the Collateral securing the Notes will be subject to other liens permitted under the terms of the Revolving Credit Facility, the indenture governing the Notes and the Senior Lien Intercreditor Agreement (as defined herein), whether existing now or arising on or after the date the Notes are issued. To the extent that third parties hold prior liens, such third parties may have rights and remedies with respect to the property subject to such liens that, if exercised, could adversely affect the value of the Collateral securing the Notes. The indenture governing the Notes does not require that Finco maintain any amount of Collateral or maintain a specific ratio of indebtedness to asset values.

With respect to some of the Collateral to be pledged, the collateral agent’s liens and ability to foreclose on the Collateral are also limited by the need to meet certain requirements, such as obtaining third-party consents, paying court fees that may be based on the principal amount of the parity lien obligations and making additional filings. If it is unable to obtain these consents, pay such fees or make these filings, the liens may be invalid and the applicable holders and lenders will not be entitled to the Collateral or any recovery with respect thereto. Finco cannot assure you that any such required consents, fee payments or filings can be obtained on a timely basis or at all. These requirements may limit the number of potential bidders for certain Collateral in any foreclosure and may delay any sale, either of which events may have an adverse effect on the sale price of the Collateral. Therefore, the practical value of realizing on the Collateral, without the appropriate consents, fees and filings, may be limited.

In the event of a foreclosure on the Collateral under the Revolving Credit Facility and other priority lien debt (or a distribution in respect thereof in a bankruptcy or insolvency proceeding), the proceeds from the

 

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Collateral may not be sufficient to satisfy the Notes and other parity lien obligations because such proceeds would, under the Senior Lien Intercreditor Agreement, first be applied to satisfy Finco’s obligations under the Revolving Credit Facility and other priority lien obligations. Only after all of Finco’s obligations under the Revolving Credit Facility and such other priority lien obligations have been satisfied will proceeds from the Collateral be applied to satisfy Finco’s obligations under the Notes and other parity lien obligations. In addition, in the event of a foreclosure on the Collateral, the proceeds from such foreclosure may not be sufficient to satisfy Finco’s obligations under the Notes and other parity lien obligations.

Pursuant to the terms contained in the Revolving Credit Facility and the indenture governing the Notes, Finco and its Restricted Subsidiaries (as defined herein) may sell Collateral and other assets. Upon any such sale, all or a portion of the interest in any asset sold may no longer constitute Collateral. The indenture governing the Notes contains a covenant concerning the use of the proceeds from any sale of assets, including the use of those proceeds to pay debt or reinvest in Finco’s business. Although Finco may seek to reinvest proceeds from any asset sales, any assets in which Finco reinvests may not constitute Collateral or be as profitable to Finco as the assets sold. Additionally, the indenture governing the Notes does not require that the Notes be secured by at least a specified amount of Collateral, whether expressed as a minimum ratio of the value of such Collateral to the amount of the Notes or otherwise.

The liens securing the Notes will be released automatically if the liens securing the Revolving Credit Facility are released.

An active trading market may not develop for the Notes.

There has been no trading market for the Notes, and Finco does not intend to apply to list the Notes on any securities exchange or to arrange for quotation on any automated dealer quotation system. In addition, the liquidity of the trading market in the Notes, and the market price quoted for the Notes, may be adversely affected by changes in the overall market for this type of security and by changes in Finco’s financial performance or prospects or in the prospects for companies in Finco’s industry generally. As a result, an active trading market may not develop for the Notes. If an active trading market does not develop or is not maintained, the market price and liquidity of the Notes may be adversely affected. In that case, you may not be able to sell your Notes at a particular time or you may not be able to sell your Notes at a favorable price. You should not purchase the Notes unless you understand, and know you can bear, all of the investment risks involving the Notes.

Finco’s subsidiaries that are not guarantors of the Notes, including Pacific Drilling, have no obligation, except in the circumstances described herein, to pay amounts due under the Notes.

The Notes are guaranteed by all of Finco’s subsidiaries that guarantee the Revolving Credit Facility. Except for such guarantors of the Notes and pledges of equity in certain guarantors directly owned by certain non-guarantors, Finco’s subsidiaries will have no obligation, contingent or otherwise (except in the circumstances described herein), to pay amounts due under the Notes or to make any funds available to pay those amounts, whether by dividend, distribution, loan or other payment. The Notes and guarantees will be structurally subordinated to all existing and future indebtedness and other obligations of any non-guarantor subsidiary, other than indebtedness and other liabilities owed to Finco by such non-guarantor subsidiaries and, in the case of certain non-guarantors, the pledge of equity in certain guarantors directly owned by such non-guarantors. Neither Pacific Drilling nor any of its current subsidiaries is a subsidiary guarantor of the Revolving Credit Facility or the Notes, and none of their assets secure the Revolving Credit Facility or the Notes. In addition, none of the Maersk Drilling assets will secure the Revolving Credit Facility or the Notes upon the closing of the Business Combination. In the event of insolvency, liquidation, reorganization, dissolution or other winding up of any non-guarantor subsidiary, all of that subsidiary’s creditors (including trade creditors) would be entitled to payment in full out of that subsidiary’s assets (other than, with respect to certain non-guarantors, the pledges of the equity in certain guarantors directly owned by them) before the holders of the Notes would be entitled to any payment. As a result, your ability to make a claim against Finco’s non-guarantor subsidiaries may be limited.

 

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Finco may in the future have additional non-guarantor subsidiaries and your ability to make a claim against such subsidiaries may also be limited. In addition, the indenture governing the Notes permits all of these non-guarantor subsidiaries to incur additional indebtedness and does not contain any limitation on the amount of other liabilities, such as trade payables, that may be incurred by these subsidiaries.

In addition, any of Finco’s subsidiaries that provide guarantees of the Notes will be automatically released from those guarantees upon the occurrence of certain events, including (i) a sale or other disposition of such guarantor that results in such guarantor no longer being a Restricted Subsidiary (as defined herein) or (ii) upon the dissolution or liquidation of such guarantor.

If any guarantee is released, no holder of the Notes will have a claim as a creditor against that subsidiary, and the indebtedness and other liabilities, including trade payables, if any, whether secured or unsecured, of that subsidiary will be effectively senior to the claim of any holders of the Notes. See “Description of the Notes—Notes Guarantee.”

A guarantee and any lien granted by a subsidiary could be voided if it constitutes a fraudulent transfer or fraudulent conveyance under federal bankruptcy law, similar state law or the insolvency laws of foreign jurisdictions, which would prevent the holders of the Notes from relying on that subsidiary to satisfy claims.

Under U.S. bankruptcy law and comparable provisions of state fraudulent transfer laws and the insolvency laws of foreign jurisdictions, Finco’s guarantees of (including for all purposes of the discussion under this caption, liens granted by Finco’s subsidiaries to secure) the Notes can be voided, or claims under the guarantees may be subordinated to all other debts of that subsidiary if, among other things, the subsidiary, at the time it incurred the indebtedness evidenced by its guarantee or, in some jurisdictions, when payments become due under the guarantee, received less than reasonably equivalent value or fair consideration for the incurrence of the guarantee and:

 

  

was insolvent or rendered insolvent by reason of such incurrence of the obligations under the guarantee;

 

  

was engaged in a business or transaction for which the subsidiary’s remaining assets constituted unreasonably small capital; or

 

  

intended to incur, or believed that it would incur, debts beyond its ability to pay those debts as they mature.

The guarantees of the Notes may also be voided, without regard to the above factors, if a court finds that the subsidiary entered into the guarantee with the actual intent to hinder, delay or defraud its other creditors.

A court would likely find that a subsidiary did not receive reasonably equivalent value or fair consideration for its guarantee if the guarantor did not substantially benefit directly or indirectly from the issuance of the guarantee. If a court were to void a guarantee, you would no longer have a claim against that subsidiary. Sufficient funds to repay the Notes may not be available from other sources, including the remaining subsidiaries providing guarantees, if any. In addition, the court might direct you to repay any amounts that you already received from the subsidiary.

The measures of insolvency for purposes of fraudulent transfer laws vary depending upon the governing law. Generally, a subsidiary would be considered insolvent if:

 

  

the sum of its debts, including contingent liabilities, were greater than the fair saleable value of all its assets;

 

  

the present fair saleable value of its assets is less than the amount that would be required to pay its probable liability on its existing debts, including contingent liabilities, as they become absolute and mature; or

 

  

it could not pay its debts as they become due.

 

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The indenture governing the Notes contains a provision intended to limit the guarantors’ liability to the maximum amount that it could incur without causing the incurrence of obligations under its guarantee to be a fraudulent transfer. Finco cannot assure you that this provision will protect the guarantees from fraudulent transfer challenges or, if it does, that the remaining amount due and collectible under the guarantees would suffice, if necessary, to pay the Notes in full when due. Such provision may not be sufficient to protect the guarantees from being voided under fraudulent transfer laws.

A financial failure by Finco or its subsidiaries may result in the assets of any or all of those entities becoming subject to the claims of all creditors of those entities.

A financial failure by Finco or its subsidiaries could affect payment of the Notes if a bankruptcy court were to substantively consolidate Finco and its subsidiaries. If a bankruptcy court substantively consolidated Finco and its subsidiaries, the assets of each entity would become subject to the claims of creditors of all entities. This would expose holders of Notes not only to the usual impairments arising from bankruptcy, but also to potential dilution of the amount ultimately recoverable because of the larger creditor base. Furthermore, forced restructuring of the Notes could occur through the “cramdown” provisions of the Bankruptcy Code. Under these provisions, the Notes could be restructured over your objections as to their general terms, including principal amount, interest rate and maturity.

The liens on the Collateral securing the Notes and the guarantees thereof are junior and subordinate to the liens on the Collateral securing the obligations under the Revolving Credit Facility and other priority lien debt.

The Notes and the guarantees are secured by second-priority liens in the Collateral granted by Finco and certain of its subsidiaries and any existing or future subsidiary in the future in accordance with the provisions of the indenture governing the Notes, subject to certain permitted liens, exceptions and encumbrances described in the indenture governing the Notes and the security documents relating to the Notes. All obligations arising under the Revolving Credit Facility are secured by first-priority liens on the same Collateral that secure the Notes on a second-priority basis. The Senior Lien Intercreditor Agreement provides, among other things, that if the collateral agent or any Parity Lien Secured Party (as defined herein) obtains possession of any Collateral or realizes any proceeds or payment in respect of any Collateral, pursuant to the exercise of remedies under any second lien security document or by the exercise of any rights available to it under applicable law as a result of any distribution of or in respect of any Collateral or proceeds in any of Finco’s or its guarantors’ bankruptcy, insolvency, liquidation, dissolution, reorganization or similar proceeding or through any other exercise of remedies, at any time prior to the payment in full of the obligations under the Revolving Credit Facility and other priority lien debt, then it will hold such Collateral, proceeds or payment in trust for the lenders under the Revolving Credit Facility and the other holders of priority lien obligations and transfer such Collateral, proceeds or payment, as the case may be, to the priority lien collateral agent as promptly as practicable. See “—The value of the Collateral securing the Notes may not be sufficient to ensure repayment of the Notes because the holders of obligations under the Revolving Credit Facility and other first-priority lien obligations will be paid first from the proceeds of the Collateral. It may be difficult to realize the value of the Collateral securing the Notes and the guarantees.”

In addition, if Finco defaults under the Revolving Credit Facility or any other priority lien debt, the lenders under such priority lien debt could declare all of the funds borrowed thereunder, together with accrued interest, immediately due and payable and foreclose on the pledged assets.

The Collateral securing the Notes and related guarantees may be diluted under certain circumstances.

The indenture governing the Notes permits Finco to incur additional secured indebtedness, including additional notes (including Notes used to pay PIK interest), parity lien obligations and other priority lien obligations, including bank financing, subject to Finco’s compliance with the applicable restrictive covenants. See “Description of the Notes—Certain Covenants—Limitation on Indebtedness” and “Description of the Notes—Certain Covenants—Limitation on Liens.”

 

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Any additional notes issued under the indenture governing the Notes would be guaranteed by the same subsidiary guarantors and would have the same liens and security interests, with the same priority, as the Notes. As a result, the Collateral securing the Notes would be shared by any additional notes Finco may issue under the indenture governing the Notes, and an issuance of such additional notes would dilute the value of the Collateral compared to the aggregate principal amount of Notes outstanding. The issuance of any such notes would also dilute the value of the Collateral. In addition, the indenture governing the Notes and Finco’s other security documents permit it and certain of its subsidiaries to incur additional priority lien debt and parity lien obligations, in some (but not all) instances limited to a threshold amount, by issuing additional debt securities under one or more new indentures or by borrowing additional amounts under the Revolving Credit Facility or under different instruments. Any additional priority lien debt or parity lien obligations secured by the same Collateral would dilute the value of the noteholders’ rights to the Collateral.

The realizable value of the Collateral may not be sufficient to pay the Notes and other future parity obligations in full after repayment of all priority lien obligations.

Certain of Finco’s offshore rigs constitute a substantial portion of the value of the Collateral securing the Notes and priority lien obligations (including the Revolving Credit Facility). The offshore contract drilling industry is currently in a period characterized by low demand for drilling services and excess rig supply. Such over-supply of offshore rigs continues to contribute to depressed demand for Finco’s rigs. Further declines in demand for Finco’s rigs may cause the value of the Collateral to decline. See “—Risks Related to Our Business and Operations—The offshore contract drilling industry is a highly competitive and cyclical business with intense price competition. We have competitors who are larger and have more financial resources than us. If we are unable to compete successfully, our profitability may be materially reduced” and “—Risks Related to Our Business and Operations—An over-supply of offshore rigs has depressed, and may in the future depress, dayrates and demand for our rigs, which may adversely impact our revenues and profitability.”

Under the Revolving Credit Facility and the indenture governing the Notes, Finco could incur a substantial amount of additional priority lien obligations and parity lien obligations, and debt secured by collateral not including the Collateral securing the Notes. In the event of a default or liquidation, there may not be sufficient realizable value of the Collateral to first repay all priority lien obligations outstanding at such time and then repay the Notes and any other outstanding parity lien obligations.

Holders of the Notes will not control decisions regarding the Collateral, even during an event of default.

Under the Senior Lien Intercreditor Agreement between the Senior Credit Facility Agent (as defined herein), the collateral agent and the Grantors (as defined herein) party thereto, the Senior Credit Facility Agent will generally be entitled to receive and apply all proceeds of any Collateral to the repayment in full of the obligations under the Revolving Credit Facility and under Finco’s other priority lien obligations before any such proceeds will be available to repay obligations under the Notes and other parity lien obligations. In addition, the Senior Credit Facility Agent will generally be entitled to sole control of all decisions and actions, including foreclosure, with respect to Collateral, even if an event of default under the Notes has occurred, and neither the holders of Notes nor the collateral agent will generally be entitled to independently exercise remedies with respect to the Collateral until the discharge of Finco’s obligations under the Revolving Credit Facility and under Finco’s other priority lien obligations, unless and until a “Standstill Period” has elapsed (see “Description of the Notes—Collateral—First Lien-Second Lien Intercreditor Arrangements—Standstill Period; Permitted Enforcement Action”). In addition, the Senior Credit Facility Agent will be entitled, without the consent of holders of Notes or the collateral agent, to amend the terms of the Revolving Credit Facility and the security documents securing Finco’s priority lien obligations and to release the priority lien on any Collateral in certain circumstances.

Furthermore, because the holders of priority lien obligations will control the disposition of the Collateral securing such priority lien obligations and the Notes, if there were an event of default under the Notes, the

 

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holders of the priority lien obligations could decide, for a specified time period, not to proceed against the Collateral, regardless of whether or not there is a default under such priority lien obligations. During such time period, unless and until discharge of the priority lien obligations, including the Revolving Credit Facility, has occurred, the sole right of the holders of the Notes will be to hold a lien on the Collateral.

At any time that obligations that have the benefit of priority liens on the Collateral are outstanding, if the holders of such indebtedness release the Collateral for any reason whatsoever, including, without limitation, in connection with any sale of assets, the parity lien on such Collateral securing the Notes will be automatically released without any action by the holders of the Notes. The Collateral so released will no longer secure Finco’s and the subsidiary guarantors’ obligations under the Notes. See “Description of the Notes—Collateral—First Lien-Second Lien Intercreditor Arrangements.”

Pursuant to the Senior Lien Intercreditor Agreement, in the event of certain insolvency or liquidation proceedings, the Parity Lien Secured Parties will not raise any objection, contest or oppose, and each Parity Lien Secured Party will waive any claim to any financing by such debtor(s)-in-possession or the liens on the Collateral securing such financing or to any use, sale or lease of cash Collateral, subject to certain exceptions.

Pursuant to the Senior Lien Intercreditor Agreement, in the event of certain insolvency or liquidation proceedings related to the Grantors or their subsidiaries, the Parity Lien Secured Parties (as defined herein) will not raise any objection, contest or oppose, and each Parity Lien Secured Party will waive any claim to any DIP Financing (as defined herein) or to any DIP Financing Liens (as defined herein), or to any use, sale or lease of Collateral or to any grant of administrative expense priority under Section 364 of the Bankruptcy Code, unless the Priority Lien Agent (as defined herein) opposes or objects to such DIP Financing, such DIP Financing Liens or such use of cash collateral or the DIP Cap (as defined herein) is exceeded, among other exceptions. Additionally, no Parity Lien Secured Party shall propose, support or enter into any DIP Financing prior to the discharge of the priority lien obligations without the consent of the Priority Lien Agent, in its sole discretion, unless liens securing such DIP Financing rank junior to the Priority Liens and such DIP Financing does not refinance any parity lien obligations which are repaid in cash prior to the discharge of the priority lien obligations. See “Description of the Notes—Collateral—First Lien-Second Lien Intercreditor Arrangements—Certain Agreements With Respect to Insolvency or Liquidation Proceedings.”

Finco will in most cases have control over the Collateral, and the sale of particular assets by it could reduce the pool of assets securing the Notes.

The security documents relating to the Collateral allow Finco to remain in possession and retain exclusive control over the Collateral (other than as set forth in the Collateral Documents (as defined herein)), to operate the Collateral, to alter the Collateral and to collect, invest and dispose of any income thereon. To the extent Finco sells or takes actions that reduce the value of the Collateral, it will reduce the pool of assets securing the Notes and the related guarantees.

The rights of holders of Notes to the Collateral securing the Notes may be adversely affected by the failure to record or perfect liens on the Collateral and other issues generally associated with the realization of liens on the Collateral.

Applicable law requires that a lien on certain tangible and intangible assets can only be properly perfected and its priority retained through certain actions undertaken by the secured party. The liens on the Collateral securing the Notes may not be perfected with respect to the claims of the Notes if the collateral agent is not able to take the actions necessary to perfect any of these liens. Moreover, applicable law requires that certain property and rights acquired after the grant of a general security interest can only be perfected at the time such property and rights are acquired and identified and additional steps to perfect in such property and rights are taken. Furthermore, even though it may constitute an event of default under the indenture governing the Notes, a third-party creditor could gain priority over one or more liens on the Collateral securing the Notes by recording an

 

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intervening lien or liens. In addition, the lien of the collateral agent will be subject to practical challenges generally associated with the realization of liens on Collateral. For example, the collateral agent may need to obtain the consent of third parties and make additional filings. If the collateral agent is unable to obtain these consents or make these filings, the liens may be invalid and the holders of the Notes will not be entitled to the Collateral or any recovery with respect thereto. Finco cannot assure you that the collateral agent will be able to obtain any such consent or make any such filing. Finco also cannot assure you that the consents of any third parties will be given when required to facilitate a foreclosure on such assets. Accordingly, the collateral agent may not have the ability to foreclose upon those assets and the value of the Collateral may significantly decrease.

Rights of holders of Notes in the Collateral may be adversely affected by bankruptcy proceedings. In addition, the value of the Collateral securing the Notes may not be sufficient for a bankruptcy court to grant post-petition interest on the Notes in a bankruptcy case against Finco or any of the guarantors. Should the amount of Finco’s obligations under the Notes, together with the amount of its obligations under the Revolving Credit Facility, and any other priority lien obligations or parity lien obligations, equal or exceed the value at foreclosure of the Collateral securing such obligations, the holders of the Notes will be deemed to have an unsecured claim for the difference between the outstanding principal amount of Notes, on the one hand, and the proceeds from realization on the Collateral available to be applied to the outstanding principal amount of Notes, on the other hand.

The right of the collateral agent to repossess and dispose of the Collateral upon acceleration is likely to be significantly impaired by federal bankruptcy law (separate and apart from the limitations set forth in the Senior Lien Intercreditor Agreement) if bankruptcy proceedings are commenced in the United States (“US”) by or against Finco prior to or possibly even after the collateral agent has repossessed and disposed of the Collateral.

Under the Bankruptcy Code, a secured creditor, such as the collateral agent acting for the holders of the Notes, is prohibited from repossessing its security from a debtor, such as us, in a bankruptcy case, or from disposing of security repossessed from a debtor, without bankruptcy court approval. Moreover, bankruptcy law permits the debtor to continue to retain and to use collateral, and the proceeds, products, rents or profits of the collateral, even though the debtor is in default under the applicable debt instruments, provided that the secured creditor is given “adequate protection.” The meaning of the term “adequate protection” may vary according to circumstances, but it is intended in general to protect the value of the secured creditors’ interest in the collateral. Adequate protection may include cash payments or the granting of additional security such as replacement liens, if and at such time as the court in its discretion determines, for any diminution in the value of the collateral as a result of the stay of repossession or disposition or any use of the collateral by the debtor during the pendency of the bankruptcy case. Generally, adequate protection payments, in the form of interest or otherwise, are not required to be paid by a debtor to a secured creditor unless the bankruptcy court determines that the value of the secured creditor’s interest in the collateral is declining during the pendency of the bankruptcy case. However, pursuant to the terms of the Senior Lien Intercreditor Agreement, the holders of the Notes agreed not to file or prosecute any motion for “adequate protection” based on their interest in the Collateral and not to object to any request for “adequate protection” by the priority lien collateral agent or any holder of priority lien obligations or to the objection by the priority lien collateral agent or any holder of priority lien obligations claiming a lack of “adequate protection,” subject to certain exceptions. In view of the lack of a precise definition of the term “adequate protection” and the broad discretionary powers of a bankruptcy court, it is impossible to predict (1) how long payments under the Notes could be delayed following commencement of a bankruptcy case, (2) whether or when the collateral agent would repossess or dispose of the Collateral or (3) whether or to what extent holders of the Notes would be compensated for any delay in payment of loss of value of the Collateral through the requirements of “adequate protection.”

Furthermore, in the event the bankruptcy court determines that the value of the Collateral is not sufficient to repay all amounts due under the Revolving Credit Facility and other priority lien obligations and on the parity lien obligations, the holders of the Notes would have secured claims only to the extent of the value (if any) of the Collateral available to them in accordance with the Senior Lien Intercreditor Agreement, and unsecured claims

 

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equal to the amount that the obligations under the Notes exceed such value of the Collateral, rendering the claims of the holders of the Notes “undersecured.” Federal bankruptcy laws do not permit the payment or accrual of interest, costs and attorneys’ fees for “undersecured claims” during the debtor’s bankruptcy case. Upon a finding by a bankruptcy court that the Notes are undersecured, the claims in the bankruptcy proceeding with respect to the Notes would be bifurcated between a secured claim and an unsecured claim, and the unsecured claim would not be entitled to the benefits of security in the Collateral. In addition, based on such a finding of under-collateralization, the unsecured portion of the Notes would not be entitled to receive “adequate protection” under U.S. bankruptcy laws. Finally, if any payments of post-petition interest were made at the time of such a finding of under-collateralization, such payments could be re-characterized by the bankruptcy court as a reduction of the principal amount of the secured claim with respect to the Notes.

Additionally, the collateral agent’s ability to foreclose on the Collateral on the noteholders’ behalf may be subject to the consent of third parties, prior liens and practical problems associated with the realization of the collateral agent’s lien on the Collateral. The debtor or trustee in a bankruptcy case may seek to void an alleged lien on the Collateral for the benefit of the bankruptcy estate, and it may be able to successfully do so if the lien is not properly perfected or was perfected within a specified period of time (generally 90 days) prior to the initiation of such proceeding. If the lien is avoided, a creditor may hold no lien and be treated as holding a general unsecured claim in the bankruptcy case. It is impossible to predict what recovery (if any) would be available for such an unsecured claim if Finco became a debtor in a bankruptcy case.

In addition to the waiver with respect to adequate protection set forth above, under the terms of the Senior Lien Intercreditor Agreement, the holders of the Notes also waive certain other important rights to which secured creditors may be entitled in a bankruptcy proceeding, as described in “Description of the Notes—Collateral—First Lien-Second Lien Intercreditor Arrangements.” These waivers could adversely impact the ability of the holders of the Notes to recover amounts owed to them in a bankruptcy proceeding.

In addition, a bankruptcy court may decide to substantively consolidate Finco and some or all of its subsidiaries in the bankruptcy proceeding. If a bankruptcy court substantively consolidated Finco and some or all of its subsidiaries, the assets of each entity would become subject to the claims of creditors of all entities that are so consolidated. Such a ruling would expose holders of Notes not only to the usual impairments arising from bankruptcy, but also to potential dilution of the amount ultimately recoverable because of the larger creditor base. Furthermore, a forced restructuring of the Notes could occur through the “cramdown” provisions of the U.S. Bankruptcy Code. Under those provisions, the Notes could be restructured over holders’ objections as to their general terms, including with respect to interest rate and maturity.

Any future pledge of Collateral may be avoidable in bankruptcy.

Any future pledge of Collateral in favor of the collateral agent, including pursuant to security documents, may be avoidable by the pledgor (a debtor in possession) or by its trustee in bankruptcy as a preferential transfer under U.S. law if certain events or circumstances exist or occur, including, among others, if:

 

  

the pledgor is insolvent at the time of the pledge;

 

  

the pledge permits the holder of the Notes to receive a greater recovery than if the pledge had not been given; and

 

  

a bankruptcy proceeding in respect of the pledgor is commenced within 90 days following the pledge, or, in certain circumstances, a longer period.

 

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There are circumstances other than repayment or discharge of the Notes under which the guarantee of a subsidiary guarantor will be automatically released with respect to the Notes.

Under various circumstances, the guarantee of a subsidiary guarantor may be released without your consent, including:

 

  

if Finco exercises its legal defeasance option or its covenant defeasance option as described under “Description of the Notes—Discharge and Defeasance”;

 

  

upon the dissolution or liquidation of such subsidiary guarantor, if immediately after giving effect thereto, Finco will be in compliance with certain covenants under the indenture governing the Notes;

 

  

if such subsidiary guarantor is designated as an Unrestricted Subsidiary (as defined herein) as described in “Description of the Notes—Certain Covenants—Designation of Restricted and Unrestricted Subsidiaries”; and

 

  

in other circumstances specified in the Senior Lien Intercreditor Agreement, including in connection with the exercise of remedies by the priority lien collateral agent.

In addition, a guarantee will be automatically released in connection with a sale, transfer or disposition of the capital stock of a subsidiary guarantor, if as a result of such sale, transfer or disposition, such subsidiary guarantor is no longer a Restricted Subsidiary and, immediately after giving effect thereto, Finco will be in compliance with certain covenants under the indenture governing the Notes. See “Description of the Notes—Notes Guarantee.”

If a bankruptcy petition were filed by or against Finco or a subsidiary guarantor, holders of the Notes may receive a lesser amount for their claim than they would have been entitled to receive under the indenture governing the Notes.

If a bankruptcy petition were filed by or against Finco or a guarantor under the Bankruptcy Code, the claim by any holder of the Notes for the principal amount of the Notes may be limited to an amount equal to the sum of:

 

  

the original issue price for the Notes; and

 

  

that portion of the original issue discount that does not constitute “unmatured interest” for purposes of the Bankruptcy Code.

Any original issue discount that was not amortized as of the date of the bankruptcy filing would constitute unmatured interest. Accordingly, the holders of the Notes under these circumstances may receive a lesser amount than they would be entitled to receive under the terms of the indenture governing the Notes, even if sufficient funds are available.

Interest on the Notes may be paid in PIK interest rather than cash, which will increase the amount of Finco’s indebtedness.

Finco will be entitled to pay PIK interest on the Notes at its option. As a result, Finco cannot assure you that it will make cash interest payments on the Notes. The payment of interest through PIK interest will increase the amount of Finco’s indebtedness and increase the risks associated with its level of indebtedness.

Risks Related to Our Business and Operations

Our business depends on the level of activity in the oil and gas industry. Adverse developments affecting the industry, including a decline in the price of oil or gas, reduced demand for oil and gas products and increased regulation of drilling and production, recently had and may in the future have a material adverse effect on our business, financial condition and results of operations.

Demand for drilling services depends on a variety of economic and political factors and the level of activity in offshore oil and gas exploration and development and production markets worldwide. The price of oil and gas,

 

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and market expectations of potential changes in the price, significantly affect this level of activity, as well as dayrates that we can charge customers for our services. Crude oil prices started to steeply decline in late 2014 and dropped to as low as approximately $19.33 per barrel of Brent Crude in April 2020. Recently, oil prices have recovered to a price of approximately $112 per barrel of Brent Crude on March 28, 2022 but have been volatile.

However, higher prices do not necessarily translate into increased drilling activity because our clients take into account a number of considerations when they decide to invest in offshore oil and gas resources, including expectations regarding future commodity prices and demand for hydrocarbons. The price of oil and gas and the level of activity in offshore oil and gas exploration and development are extremely volatile and are affected by numerous factors beyond our control, including:

 

  

worldwide production, current demand, and our customer’s views of future demand for oil and gas (including any over-supply of oil and gas as a result of the COVID-19 pandemic, actions by Organization of Petroleum Exporting Countries (“OPEC”) and other oil and gas producing nations (together with OPEC, “OPEC+”) or the war in Ukraine), which are impacted by the COVID-19 pandemic and the governmental, company and individual reactions thereto and changes in the rate of economic growth in the global economy;

 

  

the cost of exploring for, developing, producing and delivering oil and gas;

 

  

the ability of OPEC to set and maintain production levels and pricing;

 

  

expectations regarding future energy prices;

 

  

increased supply of oil and gas resulting from onshore hydraulic fracturing activity and shale development;

 

  

the relative cost of offshore oil and gas exploration versus onshore oil and gas production;

 

  

potential acceleration in the development, and the price and availability, of alternative fuels or energy sources;

 

  

the level of production in non-OPEC countries;

 

  

inventory levels, and the cost and availability of storage and transportation of oil, gas and their related products;

 

  

worldwide financial instability or recessions;

 

  

regulatory restrictions or any moratorium on offshore drilling;

 

  

the discovery rate of new oil and gas reserves either onshore or offshore;

 

  

the rate of decline of existing and new oil and gas reserves;

 

  

available pipeline and other oil and gas transportation capacity;

 

  

oil refining capacity;

 

  

the ability of oil and gas companies to raise capital;

 

  

limitations on liquidity and available credit;

 

  

advances in exploration, development and production technology either onshore or offshore;

 

  

technical advances affecting energy consumption, including the displacement of hydrocarbons through increasing transportation fuel efficiencies;

 

  

merger and divestiture activity among oil and gas producers;

 

  

the availability of, and access to, suitable locations from which our customers can produce hydrocarbons;

 

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adverse weather conditions, including hurricanes, typhoons, cyclones, winter storms and rough seas, the frequency and severity of which may be increased due to climate change;

 

  

the occurrence or threat of epidemic or pandemic diseases, such as COVID-19, or any governmental response to such occurrence or threat;

 

  

tax laws, regulations and policies;

 

  

laws, regulations and other initiatives related to environmental matters, including those addressing alternative energy sources, the phase-out of fossil fuel vehicles and the risks of global climate change;

 

  

the political environment of oil-producing regions, including uncertainty or instability resulting from civil disorder, an outbreak or escalation of armed hostilities or acts of war or terrorism; and

 

  

the laws, regulations and policies of governments regarding exploration and development of their oil and gas reserves or speculation regarding future laws or regulations.

Adverse developments affecting the industry as a result of one or more of these factors, including a decline in the price of oil and gas from their current levels or the failure of the price of oil and gas to remain consistently at a level that encourages our clients to expand their capital spending, the inability of our customers to access capital on economically advantageous terms, including as a result of the increasing focus on climate change by investors, a global recession, reduced demand for oil and gas products, or a perception that the demand for hydrocarbons will significantly decrease, increased supply due to the development of new onshore drilling and production technologies, and increased regulation of drilling and production, particularly if several developments were to occur in a short period of time, would have a material adverse effect on our business, financial condition and results of operations. However, increases in near-term commodity prices do not necessarily translate into increased offshore drilling activity because customers’ expectations of longer-term future commodity prices and expectations regarding future demand for hydrocarbons typically have a greater impact on demand for our rigs. The level of oil and gas prices has had, and may in the future have, a material adverse effect on demand for our services, and we expect that future declines in prices would have a material adverse effect on our business, results of operations and financial condition.

Public health issues, including epidemics or pandemics such as the COVID-19 pandemic, have resulted in, and may in the future cause, significant adverse consequences for our business, financial position and results of operations.

Public health issues, such as the COVID-19 (including new variants thereof) pandemic, worldwide mitigation efforts necessitated by the COVID-19 pandemic, our own mitigation efforts, and the effect from the actual and potential disruption of operations of our business partners, suppliers and customers, have had, and may in the future have, a material negative impact on our business, financial position and results of operations. In response to COVID-19, governmental authorities around the world took, and may continue to take, various actions to mitigate the spread of COVID-19, such as imposing mandatory closures of non-essential business facilities, attempting to mandate certain employee vaccinations, mandating testing for certain travelers, international and otherwise, seeking voluntary closures of certain businesses, and imposing certain other restrictions on, or advisories with respect to, travel, business operations and public gatherings or interactions. While many of the restrictions and measures initially implemented during 2020 have since been softened or lifted in varying degrees in different locations around the world, and the manufacture and distribution of COVID 19 vaccines during 2021 helped to initiate a recovery from the pandemic, the uncertainty regarding existing and new potential variants of COVID-19 and the success of any vaccines in respect thereof, may in the future cause a reduction in global economic activity or prompt, the re-imposition of certain restrictions and measures. In addition, even if not required by governmental authorities, increases in COVID-19 cases, such as if a new variant emerges, may result in significantly reduced economic activity, particularly in affected areas, which could result in a sharp reduction in the demand for oil and a decline in oil prices as occurred during 2020.

 

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We continue to experience increased costs and inefficiencies as a result of the comprehensive precautionary measures we take to help minimize the risk of COVID-19 to our business, employees, customers, suppliers and the communities in which we operate, including testing employees for COVID-19 prior to transport to a rig and quarantining any operational employee on a rig who has shown signs of COVID-19 (regardless of whether such employee has been confirmed to be infected). A variety of other precautionary measures which enable us to continue operating have nonetheless had a material negative impact on our business, financial condition and results of operations. One such measure, which has resulted in an increase in the cost of operations, has been when a situation required individuals to isolate in a designated facility and subsequently test negative for COVID-19 prior to being permitted to travel to our rigs. We also have experienced increased costs in maintaining a pool of employees that are available to substitute for employees who are not able to travel to a rig.

Many of our non-operational employees continue to work remotely a substantial majority of their time, which has created certain logistical challenges, inefficiencies and operational risks such as an increased risk of security breaches or other cyber-incidents or attacks, loss of data, fraud and other disruptions. While we are actively assessing and planning for various operational contingencies, we cannot guarantee that any actions taken by us, including the precautionary measures noted above, will be effective in preventing an interruption of operations on one or more of our rigs from an outbreak of COVID-19 or vacancies of essential positions due to COVID-19 infections. To the extent there is such an outbreak or vacancies, we have previously, and may in the future have to, temporarily shut down operations of one or more of our rigs, which could have a material negative impact on our business, financial condition and results of operations.

Governmental authorities around the world have implemented at various times during the COVID-19 pandemic, and continue to develop, policies with the goal of re-opening sectors of the economy. Certain jurisdictions have completed, or nearly completed, their respective re-opening processes. However, others temporarily returned, or may in the future return, to a restricted environment because of recent increases, and expected increases, in COVID-19 cases.

As a result of complying with travel restrictions and mandatory quarantine measures imposed by governmental authorities and responding to surges in COVID-19 cases, we have experienced, and may continue to experience, increased difficulties, delays and expenses in moving our personnel to and from our operating locations. We have been unable, and may in the future be unable, to pass these increased expenses to our customers. Additionally, disruptions to the ability of our suppliers, manufacturers and service providers to supply labor, parts, equipment or services in the jurisdictions in which we operate, whether as a result of government actions, labor shortages, travel restrictions, the inability to source labor, parts or equipment from affected locations or other effects related to the COVID-19 pandemic, have increased our operating costs and the risk of rig downtime and negatively impacted our ability to meet commitments to customers and may continue to do so in the future.

COVID-19 has had a material negative impact on the financial condition of many of our customers and resulted in, and may in the future result in, reductions to their drilling and production expenditures and delays or cancellations of projects, thereby decreasing demand for our services. We have experienced: customers seeking price reductions for our services, payment deferrals and termination of our contracts; customers seeking to not perform under our contracts pursuant to a force majeure claim; and customers that are unable or unwilling to timely pay outstanding receivables owed to us, all of which present liquidity challenges for us. In addition, we have experienced, and may in the future experience, pressure to reduce dayrates on existing contracts and idle or suspend existing operations. Any early termination payment made in connection with an early contract termination may not fully compensate us for the loss of the contract or may result in a negative impact to our projected future earnings due to the required accounting treatment of such a termination payment. Accordingly, the actual amount of revenues earned may be substantially lower than the backlog reported.

The factors described above, including the ultimate duration and scope of the COVID-19 pandemic (including any potential future outbreaks of new variants and the success of vaccination programs), the impact on customers,

 

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suppliers, manufacturers and service providers, the timing to return to normal economic conditions, the impact on our operations, the demand for our services, and any permanent behavioral changes that the pandemic may cause, have had, and may continue to have, a material negative impact on our business, results of operations and financial condition. We cannot predict when this negative impact will end, or whether it may worsen.

The offshore contract drilling industry is a highly competitive and cyclical business with intense price competition. We have competitors who are larger and have more financial resources than us. If we are unable to compete successfully, our profitability may be materially reduced.

The offshore contract drilling industry is a highly competitive and cyclical business characterized by high capital and operating costs and evolving capability of newer rigs. Drilling contracts are traditionally awarded on a competitive bid basis. Price competition, rig availability, location and suitability and technical specifications are the primary factors in determining which rig is qualified for a job, and additional factors are considered when determining which contractor is awarded a job. Such additional factors include experience of the workforce, operating efficiency, safety performance record, condition of equipment, operating integrity, reputation, industry standing and client relations. Our future success and profitability will partly depend upon our ability to keep pace with our customers’ demands with respect to these factors. In the past several years, the pace of consolidation in our industry has increased, leading to the creation of a number of larger and financially stronger competitors. If we are unable, or our customers believe that we are unable, to compete with the scale and financial strength of these larger competitors, it could harm our ability to maintain existing drilling contracts and secure new ones. Moreover, certain of our competitors have engaged, or may in the future engage, in bankruptcy proceedings, debt refinancing transactions, management changes or other strategic initiatives in an attempt to reduce operating costs to maintain their competitive position in the market, which could result in stronger or healthier balance sheets and, in turn, an improved ability to compete with us. Further, if current competitors or new market entrants implement new or differentiated technical capabilities, services or standards, which may be more attractive to our customers or price their product offerings more competitively, it could have a material adverse effect on our business, financial condition and results of operations.

Our industry is also cyclical. The offshore contract drilling industry has recently been, and currently is, in a period characterized by excess rig supply. Periods of low demand or excess rig supply intensify the competition in the industry and have resulted in, and may continue to result in, many of our rigs earning substantially lower dayrates or being idle for long periods of time. Although the industry is experiencing a rationalization and correction of the global offshore rig supply, we cannot provide you with any assurances as to when such period of excess rig supply will end, and when there will be higher demand for contract drilling services or a more meaningful reduction in the number of drilling rigs.

An over-supply of offshore rigs has depressed, and may in the future depress, dayrates and demand for our rigs, which may adversely impact our revenues and profitability.

Prior to the downturn that began in 2014, we experienced an extended period of high utilization and high dayrates, and industry participants materially increased the supply of drilling rigs by building new drilling rigs, including some that have not yet entered service. This increase in supply, combined with the decrease in demand for drilling rigs resulting from, among other factors, a substantial decline in the price of oil beginning in 2014, resulted in an oversupply of drilling rigs, which contributed to the recent decline in utilization and dayrates.

Although the industry is experiencing a rationalization and correction of the global offshore rig supply, which has resulted in an increase in dayrates, we continue to experience competition from newbuild rigs that have either already entered the market or are available to enter the market. The entry of these rigs into the market has resulted, and may in the future result, in lower dayrates for both newbuilds and existing rigs rolling off their current contracts. Lower utilization and dayrates have adversely affected our revenues and profitability and may continue to do so. In addition, our competitors may relocate rigs to geographic markets in which we operate, which could exacerbate any excess rig supply, or depress the current rationalization and correction of offshore rig supply, and result in lower dayrates and utilization in those regions. To the extent that the drilling rigs currently

 

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under construction or on order do not have contracts upon their completion, there may be increased price competition as such vessels become operational, which could lead to a reduction in dayrates and in utilization. Rig operators may take lower dayrates and shorter contract durations on older rigs to keep their rigs operational and avoid scrapping or retiring them. As a result, our business, financial condition and results of operations would be materially adversely affected.

We have not been, and may continue not to be, able to renew or replace certain expiring contracts, and our customers have sought, and may continue to seek, to terminate, renegotiate or repudiate our drilling contracts and have had, and may continue to have, financial difficulties that prevent them from meeting their obligations under our drilling contracts.

Beginning with the market downturn that began in 2014, the new customer contracts we have entered into have generally had less favorable terms, including dayrates, than contracts entered into prior to the downturn. In addition, for some of our older rigs we were unable to find any replacement contracts. Our ability to renew contracts that expire or obtain new contracts and the terms of any such contracts will depend on market conditions and our customers’ expectations and assumptions of future oil prices and other factors.

We have also experienced: customers seeking price reductions for our services, payment deferrals and termination of our contracts; customers seeking to not perform under our contracts pursuant to a force majeure claim; and customers that are unable or unwilling to timely pay outstanding receivables owed to us, all of which present liquidity challenges for us. Our customers may generally terminate our drilling contracts if a drilling rig is destroyed or lost or if we have to suspend drilling operations for a specified period of time as a result of a breakdown of equipment or, in some cases, due to other events beyond the control of either party. In the case of nonperformance and under certain other conditions, our drilling contracts generally allow our customers to terminate without any payment to us. The terms of some of our drilling contracts permit the customer to terminate the contract after a specified notice period by tendering contractually specified termination amounts or, in some cases, without any payment. These termination payments, if any, may not fully compensate us for the loss of a contract. The early termination of a contract may result in a rig being idle for an extended period of time and a reduction in our contract backlog and associated revenue, which could have a material adverse effect on our business, financial condition and results of operations. Moreover, if any of our long-term contracts were to be terminated early, such termination could affect our future earnings flow and could have material adverse effect on our future financial condition and results of operations, even if we were to receive the contractually specified termination amount.

During periods of depressed market conditions, we are subject to an increased risk of our customers seeking to renegotiate or repudiate their contracts. The ability of our customers to perform their obligations under drilling contracts with us may also be adversely affected by the financial condition of the customer, restricted credit markets, economic downturns and industry downturns. We may elect to renegotiate the rates we receive under our drilling contracts downward if we determine that to be a reasonable business solution. If our customers cancel or are unable to perform their obligations under their drilling contracts, including their payment obligations, and we are unable to secure new contracts on a timely basis on substantially similar terms or if we elect to renegotiate our drilling contracts and accept terms that are less favorable to us, it could have a material adverse effect on our business, financial condition and results of operations.

Our current backlog of contract drilling revenue may not be ultimately realized.

Generally, contract backlog only includes future revenues under signed drilling contracts; however, from time to time, we may report anticipated commitments under letters of intent or awards for which definitive agreements have not yet been, but are expected to be, signed. We may not be able to perform under these contracts as a result of operational or other breaches or due to events beyond our control, and we may not be able to ultimately execute a definitive agreement in cases where one does not currently exist. Moreover, we can provide no assurance that our customers will be able to or willing to fulfill their contractual commitments to us or that they will not seek to renegotiate or repudiate their contracts, especially during an industry downturn. The

 

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terms of some of our drilling contracts permit the customer to terminate the contract after specified notice periods by tendering contractually specified termination amounts or, in certain cases, without any payment. In estimating backlog, we make certain assumptions about applicable dayrates for our longer-term contracts with dayrate adjustment mechanisms (like certain of our contracts with Royal Dutch Shell plc (“Shell”) and Exxon Mobil Corporation (“ExxonMobil”)). We cannot assure you that actual results will mirror these assumptions. Our inability to perform under our contractual obligations or to execute definitive agreements, our customers’ inability or unwillingness to fulfill their contractual commitments to us, including as a result of contract repudiations or our decision to accept less favorable terms on our drilling contracts, or the failure of actual results to reflect the assumptions we use to estimate backlog for certain contracts, may have a material adverse effect on our business, financial condition and results of operations.

We are substantially dependent on several of our customers, including ExxonMobil, Shell and Equinor ASA, and the loss of any of these customers would have a material adverse effect on our financial condition and results of operations.

Any concentration of customers increases the risks associated with any possible termination or nonperformance of drilling contracts, failure to renew contracts or award new contracts or reduction of their drilling programs. As of December 31, 2021, ExxonMobil, Shell and Equinor ASA (“Equinor”) represented approximately 60.2 percent, 18.1 percent and 5.1 percent of our contract backlog, respectively. ExxonMobil and Shell accounted for approximately 39.1 percent and 13.3 percent, respectively, of our consolidated operating revenues for the period from February 6 through December 31, 2021. Shell, ExxonMobil and Saudi Arabian Oil Company (“Saudi Aramco”) accounted for approximately 30.0 percent, 29.8 percent and 13.9 percent, respectively, of our consolidated operating revenues for the period from January 1 through February 5, 2021. This concentration of customers increases the risks associated with any possible termination or nonperformance of contracts, in addition to our exposure to credit risk. If any of these customers were to terminate or fail to perform their obligations under their contracts and we were not able to find other customers for the affected drilling units promptly, our financial condition and results of operations could be materially adversely affected.

Our business involves numerous operating hazards.

Our operations are subject to many hazards inherent in the drilling business, including:

 

  

well blowouts;

 

  

fires;

 

  

collisions or groundings of offshore equipment and helicopter accidents;

 

  

punch-throughs;

 

  

mechanical or technological failures;

 

  

failure of our employees or third-party contractors to comply with our internal environmental, health and safety guidelines;

 

  

pipe or cement failures and casing collapses, which could release oil, gas or drilling fluids;

 

  

adverse weather conditions, including hurricanes, typhoons, tsunamis, cyclones, winter storms and rough seas, the frequency and severity of which may be increased due to climate change;

 

  

geological formations with abnormal pressures;

 

  

loop currents or eddies;

 

  

failure of critical equipment;

 

  

toxic gas emanating from the well; and

 

  

spillage handling and disposing of materials.

 

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These hazards could cause personal injury or loss of life, suspend drilling operations, result in regulatory investigation or penalties, seriously damage or destroy property and equipment, result in claims by employees, customers or third parties, cause environmental damage and cause substantial damage to oil and gas producing formations or facilities. Operations also may be suspended because of machinery breakdowns, abnormal drilling conditions, and failure of subcontractors to perform or supply goods or services or personnel shortages. The occurrence of any of the hazards we face could have a material adverse effect on our business, financial condition and results of operations.

We are exposed to risks relating to operations in international locations.

We operate in various regions throughout the world that may expose us to political and other uncertainties, including risks of:

 

  

seizure, nationalization or expropriation of property or equipment;

 

  

monetary policies, government credit rating downgrades and potential defaults, and foreign currency fluctuations and devaluations;

 

  

limitations on the ability to repatriate income or capital;

 

  

complications associated with repairing and replacing equipment in remote locations;

 

  

repudiation, nullification, modification or renegotiation of contracts;

 

  

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

 

  

import-export quotas, wage and price controls and imposition of trade barriers;

 

  

delays in implementing private commercial arrangements as a result of government oversight;

 

  

compliance with and changes in taxation rules or policies;

 

  

compliance with and changes in various jurisdictional regulatory or financial requirements, including rig flagging and local ownership requirements;

 

  

other forms of government regulation and economic conditions that are beyond our control and that create operational uncertainty;

 

  

governmental corruption;

 

  

the occurrence or threat of epidemic or pandemic diseases, such as COVID-19, or any government response to such occurrence or threat;

 

  

piracy; and

 

  

terrorist acts, war, revolution and civil disturbances.

Further, we operate or have operated in certain less-developed countries with legal systems that are not as mature or predictable as those in more developed countries, which can lead to greater uncertainty in legal matters and proceedings. Examples of challenges of operating in these countries include:

 

  

procedural requirements for temporary import permits, which may be difficult to obtain; and

 

  

the effect of certain temporary import permit regimes, where the duration of the permit does not coincide with the general term of the drilling contract.

Our ability to do business in a number of jurisdictions is subject to maintaining required licenses and permits and complying with applicable laws and regulations. For example, all of our drilling units are subject to regulatory requirements of the flag state where the drilling unit is registered. The flag state requirements are international maritime requirements and, in some cases, further interpolated by the flag state itself. In addition, each of our drilling units must be “classed” by a classification society, signifying that such drilling rig has been built and maintained in accordance with the rules of the classification society and complies with applicable rules

 

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and regulations of the flag state. If any drilling unit loses its flag, does not maintain its class or fails any periodical survey or special survey, the drilling unit will be unable to carry on operations and will be unemployable and uninsurable.

Jurisdictions where we operate may attempt to impose requirements that our drilling units operating in such a jurisdiction have some local ownership or be registered under the flag of that jurisdiction, or both. If our debt agreements do not permit us to change the flag of a rig to a certain jurisdiction or register a rig under the flag of that jurisdiction (and consequently comply with local ownership requirements), and if we are otherwise unable to successfully object to registration, we may no longer be able to operate in that country. Any such inability to carry on operations in jurisdictions where we operate or desire to operate, or our failure to comply with any other laws and regulations of the countries where we operate, could have a material adverse effect on our results of operations.

In addition, OPEC and OPEC+ initiatives, as well as other governmental actions, have caused and may continue to cause oil price volatility. In some areas of the world, this governmental activity has adversely affected the amount of exploration and development work done by major oil companies, which may continue. In addition, some governments favor or effectively require the awarding of drilling contracts to local contractors, require use of a local agent, require partial local ownership or require foreign contractors to employ citizens of, or purchase supplies from, a particular jurisdiction. These practices may adversely affect our ability to compete and our results of operations.

In June 2016, the UK held a referendum in which voters approved an exit from the EU (“Brexit”). The UK exited the EU on January 31, 2020, consistent with the terms of the EU-UK Withdrawal Agreement, with a transition period that ended on December 31, 2020. On January 1, 2021, the UK left the EU Single Market and Customs Union as well as all EU policies and international agreements. As a result, the free movement of persons, goods, services and capital between the UK and the EU ended, and the EU and the UK formed two separate markets and two distinct regulatory and legal spaces. On December 24, 2020, the European Commission reached a trade agreement with the UK on the terms of its future cooperation with the EU. The trade agreement, which was signed on December 30, 2020, applied provisionally from January 1, 2021 to April 30, 2021 and formally entered into force on May 1, 2021, offers UK and EU companies preferential access to each other’s markets, ensuring imported goods will be free of tariffs and quotas (subject to rules of origin requirements). Uncertainty exists regarding the ultimate impact of this trade agreement, as well as the extent of possible financial, trade, regulatory and legal implications of Brexit. Brexit also contributes to global political and economic uncertainty, which may cause, among other consequences, volatility in exchange rates and interest rates, and changes in regulations. The Company provides contract drilling services to the international oil and gas industry and our fleet operates globally across multiple locations. Based on our global operating model and the versatility and marketability of our fleet, to date we have not seen the impact of Brexit to be significant to the Company.

Operating and maintenance costs of our rigs may be significant and may not correspond to revenue earned.

Our operating expenses and maintenance costs depend on a variety of factors including: crew costs, costs of provisions, equipment, insurance, maintenance and repairs, and shipyard costs, many of which are beyond our control. Our total operating costs are generally related to the number of drilling rigs in operation and the cost level in each country or region where such drilling rigs are located. Equipment maintenance costs fluctuate depending upon the type of activity that the drilling rig is performing and the age and condition of the equipment. Operating and maintenance costs will not necessarily fluctuate in proportion to changes in operating revenues. While operating revenues may fluctuate as a function of changes in dayrate, costs for operating a rig may not be proportional to the dayrate received and may vary based on a variety of factors, including the scope and length of required rig preparations and the duration of the contractual period over which such expenditures are amortized. Any investments in our rigs may not result in an increased dayrate for or income from such rigs. A disproportionate amount of operating and maintenance costs in comparison to dayrates could have a material adverse effect on our business, financial condition and results of operations.

 

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

Contracts with national oil companies are often non-negotiable and may expose us to greater commercial, political and operational risks than we assume in other contracts, such as exposure to materially greater environmental liability and other claims for damages (including consequential damages) and personal injury related to our operations, or the risk that the contract may be terminated by our client without cause on short-term notice, contractually or by governmental action, under certain conditions that may not provide us an early termination payment, collection risks and political risks. In addition, our ability to resolve disputes or enforce contractual provisions may be negatively impacted with these contracts. We can provide no assurance that the increased risk exposure will not have an adverse impact on our future operations or that we will not increase the number of rigs contracted to national oil companies with commensurate additional contractual risks.

Operational interruptions or maintenance or repair work may cause our customers to suspend or reduce payment of dayrates until operation of the respective drilling rig is resumed, which may lead to loss of revenue or termination or renegotiation of the drilling contract.

If our drilling rigs are idle for reasons that are not related to the ability of the rig to operate, our customers are entitled to pay a waiting, or standby, rate that is lower than the full operational rate. In addition, if our drilling rigs are taken out of service for maintenance and repair for a period of time that exceeds the scheduled maintenance periods set forth in our drilling contracts, we will not be entitled to payment of dayrates until the rig is able to work. Several factors could cause operational interruptions, including:

 

  

breakdowns of equipment and other unforeseen engineering problems;

 

  

work stoppages, including labor strikes;

 

  

shortages of material and skilled labor;

 

  

delays in repairs by suppliers;

 

  

surveys by government and maritime authorities;

 

  

periodic classification surveys;

 

  

inability to obtain permits;

 

  

severe weather, strong ocean currents or harsh operating conditions;

 

  

force majeure events; and

 

  

the occurrence or threat of epidemic or pandemic diseases, such as COVID-19, or any government response to such occurrence or threat.

Several of these factors have been exacerbated by current global supply chain disruptions. If the interruption of operations exceeds a determined period due to an event of force majeure, our customers have the right to pay a rate that is significantly lower than the waiting rate for a period of time and, thereafter, may terminate the drilling contracts related to the subject rig. Suspension of drilling contract payments, prolonged payment of reduced rates or termination of any drilling contract as a result of an interruption of operations as described herein could materially adversely affect our business, financial condition and results of operations.

We may have difficulty obtaining or maintaining insurance in the future and our insurance coverage and contractual indemnity rights may not protect us against all the risks and hazards we face.

We do not procure insurance coverage for all of the potential risks and hazards we may face. Furthermore, no assurance can be given that we will be able to obtain insurance against all of the risks and hazards we face or that we will be able to obtain or maintain adequate insurance at rates and with deductibles or retention amounts that we consider commercially reasonable. In addition, our insurance carriers may interpret our insurance policies such that they do not cover losses for which we make claims.

 

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Although we maintain insurance in the geographic areas in which we operate, pollution, reservoir damage and environmental risks generally are not fully insurable. Our insurance policies may not adequately cover our losses or may have exclusions of coverage for some losses. We do not have insurance coverage or for all risks, including loss of hire insurance on most of the rigs in our fleet. Uninsured exposures may include expatriate activities prohibited by US laws and regulations, radiation hazards, cyber risks, certain loss or damage to property onboard our rigs and losses relating to shore-based terrorist acts or strikes. In addition, our insurance may not cover losses associated with pandemics such as the COVID-19 pandemic. Furthermore, the damage sustained to offshore oil and gas assets in the United States as a result of hurricanes has negatively impacted certain aspects of the energy insurance market, resulting in more restrictive and expensive coverage for US named windstorm perils due to the price or lack of availability of coverage. Accordingly, we have in the past self-insured the rigs in the US Gulf of Mexico for named windstorm perils. We currently have US windstorm coverage for most of our US fleet subject to certain limits but will continue to monitor the insurance market conditions in the future and may decide not to, or be unable to, purchase named windstorm coverage for some or all of the rigs operating in the US Gulf of Mexico.

Under our drilling contracts, liability with respect to personnel and property is customarily assigned on a “knock-for-knock” basis, which means that we and our customers assume liability for our respective personnel and property, irrespective of the fault or negligence of the party indemnified. Although our drilling contracts generally provide for indemnification from our customers for certain liabilities, including liabilities resulting from pollution or contamination originating below the surface of the water, enforcement of these contractual rights to indemnity may be limited by public policy and other considerations and, in any event, may not adequately cover our losses from such incidents. There can also be no assurance that those parties with contractual obligations to indemnify us will necessarily be in a financial position to do so. During depressed market periods, such as the one in which we recently operated, the contractual indemnity provisions we are able to negotiate in our drilling contracts may require us to assume more risk than we would during normal market periods.

If a significant accident or other event occurs and is not fully covered by insurance or contractual indemnity, it could adversely affect our business, financial condition and results of operations.

Our failure to adequately protect our sensitive information technology systems and critical data and our service providers’ failure to protect their systems and data could have a material adverse effect on our business, results of operations and financial condition.

We increasingly depend on information technology systems that we manage, and others that are managed by our third-party service and equipment providers, to conduct our day-to-day operations, including critical systems on our drilling units, and these systems are subject to risks associated with cyber incidents or attacks. It has been reported that unknown entities or groups have mounted cyber-attacks on businesses and other organizations solely to disable or disrupt computer systems, disrupt operations and, in some cases, steal data. In addition, the US government has issued public warnings that indicate that energy assets and companies engaging in significant transactions, such as acquisitions, might be specific targets of cybersecurity threats. Also, in response to the COVID-19 pandemic, many of our non-operational employees continue to work remotely a substantial majority of their time, which has created certain logistical challenges, inefficiencies and operational risks such as an increased risk of security breaches or other cyber-incidents or attacks, loss of data, fraud and other disruptions. Working remotely has significantly increased the use of online conferencing services and remote networking, which enable employees to work outside of our corporate infrastructure and, in some cases, use their own personal devices. This remote work model has resulted in an increased demand for information technology resources and may expose us to additional risks of security breaches or other cyber-incidents or attacks, loss of data, fraud and other disruptions as a consequence of more employees accessing sensitive and critical information from remote locations. Due to the nature of cyber-attacks, breaches to our systems or our service or equipment providers’ systems could go undetected for a prolonged period of time. A breach could also originate from, or compromise, our customers’ and vendors’ or other third-party networks outside of our control. A breach

 

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may also result in legal claims or proceedings against us by our shareholders, employees, customers, vendors and governmental authorities, both US and non-US. While the Company has a cybersecurity program, a significant cyber-attack could disrupt our operations and result in downtime, loss of revenue, harm to the Company’s reputation, or the loss, theft, corruption or unauthorized release of critical data of us or those with whom we do business as well as result in higher costs to correct and remedy the effects of such incidents. If our or our service or equipment providers’ systems for protecting against cyber incidents or attacks prove to be insufficient and an incident were to occur, it could have a material adverse effect on our business, financial condition and results of operations, along with our reputation. Even though we carry cyber insurance that may provide insurance coverage under certain circumstances, we might suffer losses as a result of a security breach that exceeds the coverage available under our policy or for which we do not have coverage.

In addition, laws and regulations governing data privacy and the unauthorized disclosure of confidential or protected information, including the European Union General Data Protection Regulation, the Data Protection Law, as revised, of the Cayman Islands, the California Consumer Privacy Act and other recent legislation in various US states and non-US jurisdictions, pose increasingly complex compliance challenges and potentially elevate costs, and any failure to comply with these laws and regulations could result in significant penalties and legal liability.

Upgrades, refurbishment and repair of rigs are subject to risks, including delays and cost overruns, that could have an adverse impact on our available cash resources and results of operations.

We will continue to make upgrades, refurbishment and repair expenditures to our fleet from time to time, some of which may be unplanned. In addition, we may reactivate rigs that have been cold or warm stacked and make selective acquisitions of rigs. Our customers may also require certain shipyard reliability upgrade projects for our rigs. These projects and other efforts of this type are subject to risks of cost overruns or delays inherent in any large construction project as a result of numerous factors, including the following:

 

  

shortages of equipment, materials or skilled labor;

 

  

work stoppages and labor disputes;

 

  

unscheduled delays in the delivery of ordered materials and equipment;

 

  

local customs strikes or related work slowdowns that could delay importation of equipment or materials;

 

  

weather interferences;

 

  

difficulties in obtaining necessary permits or approvals or in meeting permit or approval conditions;

 

  

design and engineering problems;

 

  

inadequate regulatory support infrastructure in the local jurisdiction;

 

  

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

 

  

unforeseen increases in the cost of equipment, labor and raw materials, particularly steel;

 

  

unanticipated actual or purported change orders;

 

  

client acceptance delays;

 

  

disputes with shipyards and suppliers;

 

  

delays in, or inability to obtain, access to funding;

 

  

shipyard availability, failures and difficulties, including as a result of financial problems of shipyards or their subcontractors; and

 

  

failure or delay of third-party equipment vendors or service providers.

 

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The failure to complete a rig upgrade, refurbishment or repair on time, or at all, may result in related loss of revenues, penalties, or delay, renegotiation or cancellation of a drilling contract or the recognition of an asset impairment. Additionally, capital expenditures could materially exceed our planned capital expenditures. Moreover, when our rigs are undergoing upgrade, refurbishment and repair, they may not earn a dayrate during the period they are out of service. If we experience substantial delays and cost overruns in our shipyard projects, it could have a material adverse effect on our business, financial condition and results of operations. We currently have no new rigs under construction.

Failure to attract and retain skilled personnel or an increase in personnel costs could adversely affect our operations.

We require skilled personnel to operate and provide technical services and support for our drilling units. In the past, during periods of high demand for drilling services and increasing worldwide industry fleet size, shortages of qualified personnel have occurred. During the last few years of reduced demand, there were layoffs of qualified personnel (including offshore personnel), who often find work with competitors or leave the industry. As a result, if market conditions further improve and we seek to reactivate warm or cold stacked rigs, upgrade our working rigs or purchase additional rigs, we may face shortages of qualified personnel, which would impair our ability to attract qualified personnel for our new or existing drilling units, impair the timeliness and quality of our work and create upward pressure on personnel costs, any of which could adversely affect our operations. In addition, the unexpected loss of members of management, qualified personnel or a significant number of employees due to disease, including COVID-19, disability or death, could have a material adverse effect on us.

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

Our reliance on third-party suppliers, manufacturers and service providers to secure equipment used in our drilling operations exposes us to volatility in the quality, price and availability of such items. Certain specialized parts and equipment we use in our operations may be available only from a single or small number of suppliers. During the last few years of reduced demand, many of these third-party suppliers reduced their inventories of parts and equipment and, in some cases, reduced their production capacity. Moreover, the global supply chain has recently been disrupted by the COVID-19 pandemic, resulting in shortages of, and increased pricing pressures on, among other things, certain raw materials and labor. If the market for our services improves and we seek to reactivate warm or cold stacked rigs, upgrade our working rigs or purchase additional rigs, these reductions and global supply chain constraints could make it more difficult for us to find equipment and parts for our rigs. A disruption or delay in the deliveries from such third-party suppliers, capacity constraints, production disruptions, price increases, defects or quality-control issues, recalls or other decreased availability or servicing of parts and equipment could adversely affect our ability to reactivate rigs, upgrade working rigs, purchase additional rigs or meet our commitments to customers on a timely basis, adversely impact our operations and revenues by resulting in uncompensated downtime, reduced dayrates, the incurrence of liquidated damages or other penalties or the cancellation or termination of contracts, or increase our operating costs.

We may experience risks associated with future mergers, acquisitions or dispositions of businesses or assets or other strategic transactions.

As part of our business strategy, and as evidenced by the completed Pacific Drilling Merger and the proposed Business Combination with Maersk Drilling, we have pursued and completed, and may continue to pursue, mergers, acquisitions or dispositions of businesses or assets or other strategic transactions that we believe will enable us to strengthen or broaden our business. We may be unable to implement this element of our strategy if we cannot identify suitable companies, businesses or assets, reach agreement on potential strategic transactions on acceptable terms, manage the impacts of such transactions on our business or for other reasons. Moreover,

 

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mergers, acquisitions, dispositions and other strategic transactions, such as the Pacific Drilling Merger and the proposed Business Combination with Maersk Drilling, involve various risks, including, among other things, (i) difficulties relating to integrating or disposing of a business and unanticipated changes in customer and other third-party relationships subsequent thereto, (ii) diversion of management’s attention from day-to-day operations, (iii) failure to realize the anticipated benefits of such transactions, such as cost savings and revenue enhancements, (iv) potentially substantial transaction costs associated with such transactions and (v) potential impairment resulting from the overpayment for an acquisition.

Future mergers or acquisitions may require us to obtain additional equity or debt financing, which may not be available on attractive terms. Moreover, to the extent a transaction financed by non-equity consideration results in goodwill, it will reduce our tangible net worth, which might have an adverse effect on credit availability.

Acts of terrorism, piracy and political and social unrest could affect the markets for drilling services, which may have a material adverse effect on our results of operations.

Acts of terrorism and social unrest, brought about by world political events or otherwise, have caused instability in the world’s financial and insurance markets in the past and may occur in the future. Such acts could be directed against companies such as ours. In addition, acts of terrorism, piracy and social unrest could lead to increased volatility in prices for crude oil and natural gas and could affect the markets for drilling services. Insurance premiums could increase and coverage may be unavailable in the future. Government regulations may effectively preclude us from engaging in business activities in certain countries. These regulations could be amended to cover countries where we currently operate or where we may wish to operate in the future.

Our drilling contracts do not generally provide indemnification against loss of capital assets or loss of revenues resulting from acts of terrorism, piracy or political or social unrest. We have limited insurance for our assets providing coverage for physical damage losses resulting from risks, such as terrorist acts, piracy, vandalism, sabotage, civil unrest, expropriation and acts of war, and we do not carry insurance for loss of revenues resulting from such risks.

Fluctuations in exchange rates and nonconvertibility of currencies could result in losses to us.

We may experience currency exchange losses when revenues are received or expenses are paid in nonconvertible currencies, when we do not hedge an exposure to a foreign currency, when the result of a hedge is a loss or if any counterparty to our hedge were to experience financial difficulties. We may also incur losses as a result of an inability to collect revenues due to a shortage of convertible currency available to the country of operation, controls over currency exchange or controls over the repatriation of income or capital.

Inflation may adversely affect our operating results.

Inflationary factors such as increases in the labor costs, material costs and overhead costs may adversely affect our operating results. Although we have experienced increases in the cost of labor and materials as noted above, we do not believe that inflation has had a material impact on our financial position or results of operations to date; however, a high rate of inflation, including a continuation of inflation at the current rate, may have an adverse effect on our ability to maintain current levels of gross margin and general and administrative expenses as a percentage of total revenue, if our dayrates do not increase with these increased costs.

We are a holding company, and we are dependent upon cash flow from subsidiaries to meet our obligations.

We currently conduct our operations through our subsidiaries, and our operating income and cash flow are generated by our subsidiaries. As a result, cash we obtain from our subsidiaries is the principal source of funds necessary to meet our debt service obligations. Unless they are guarantors of our indebtedness, our subsidiaries do not have any obligation to pay amounts due on our indebtedness or to make funds available for that purpose.

 

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Contractual provisions or laws, as well as our subsidiaries’ financial condition and operating requirements, may also limit our ability to obtain the cash that we require from our subsidiaries to pay our debt service obligations. Applicable tax laws may also subject such payments to us by our subsidiaries to further taxation.

The warrants Noble Parent issued pursuant to the Plan are exercisable for Ordinary Shares, and the exercise of such equity instruments would have a dilutive effect to shareholders of Noble Parent.

On the Effective Date and pursuant to the Plan, Noble Parent issued 8,333,081 Tranche 1 Warrants and 8,333,081 Tranche 2 Warrants to the holders of Legacy Notes (as defined in “Note 2—Chapter 11 Emergence” to the Audited Financial Statements included elsewhere in this prospectus) and 2,777,698 Tranche 3 Warrants to the holders of Legacy Noble’s ordinary shares outstanding prior to the Effective Date. The Tranche 1 Warrants are exercisable for one Ordinary Share per warrant at an exercise price of $19.27 per warrant, the Tranche 2 Warrants are exercisable for one Ordinary Share per warrant at an exercise price of $23.13 per warrant and the Tranche 3 Warrants are exercisable for one Ordinary Share per warrant at an exercise price of $124.40 per warrant (in each case as may be adjusted from time to time pursuant to the applicable warrant agreement). The Tranche 1 Warrants and the Tranche 2 Warrants are exercisable until 5:00 p.m., Eastern time, on February 4, 2028 and the Tranche 3 Warrants are exercisable until 5:00 p.m., Eastern time, on February 4, 2026. The Tranche 1 Warrants and the Tranche 2 Warrants have Black-Scholes protections, including in the event of a Fundamental Transaction (as defined in the applicable warrant agreement). The Tranche 1 Warrants and the Tranche 2 Warrants also provide that while the Mandatory Exercise Condition (as defined in the applicable warrant agreement) set forth in the applicable warrant agreement has occurred and is continuing, Noble Parent or the holders of Tranche 1 Warrants or Tranche 2 Warrants representing at least 20% of such tranche (the “Required Mandatory Exercise Warrantholders”) have the right and option (but not the obligation) to cause all or a portion of the warrants to be exercised on a cashless basis. In the case of Noble Parent, under the Mandatory Exercise Condition, all of the Tranche 1 Warrants or the Tranche 2 Warrants (as applicable) would be exercised. In the case of the electing Required Mandatory Exercise Warrantholders, under the Mandatory Exercise Condition, all of their respective Tranche 1 Warrants or Tranche 2 Warrants (as applicable) would be exercised. Mandatory exercises entitle the holder of each warrant subject thereto to (i) the number of Ordinary Shares issuable upon exercise of such warrant on a cashless basis and (ii) an amount payable in cash, Ordinary Shares or a combination thereof (in Noble Parent’s sole discretion) equal to the Black-Scholes Value (as defined in the applicable warrant agreement) with respect to the number of Ordinary Shares withheld upon exercise of such warrant on a cashless basis. As of March 28, 2022, the Mandatory Exercise Condition set forth in the warrant agreements for the Tranche 1 Warrants has been satisfied and the Tranche 2 Warrants was not satisfied. Between January 1, 2022 and March 28, 2022, an aggregate of 1,333,036 Ordinary Shares were issued pursuant to Tranche 1 Warrants and Tranche 2 Warrants pursuant to all exercises during such period. These exercises, and continued exercises of these warrants into Ordinary Shares pursuant to the terms of the outstanding warrants, will have a dilutive effect to the holdings of Noble Parent’s existing shareholders.

Future sales or the availability for sale of substantial amounts of the Ordinary Shares, or the perception that these sales may occur, could adversely affect the trading price of the Ordinary Shares and could impair the ability of Noble Parent to raise capital through future sales of equity securities.

Pursuant to the Memorandum of Association of Noble Parent, the share capital of Noble Parent is $6,000 divided into 500,000,000 ordinary shares of a par value of $0.00001 each and 100,000,000 shares of a par value of $0.00001, each of such class or classes having the rights as the Board may determine from time to time. On March 28, 2022, there were 63,092,165 Ordinary Shares outstanding and 5,263,182 Penny Warrants issued and outstanding. In addition, as of March 28, 2022, 6,272,963 Tranche 1 Warrants, 8,317,842 Tranche 2 Warrants and 2,777,980 Tranche 3 Warrants were outstanding and exercisable. Noble Parent also has 7,131,501 Ordinary Shares authorized and reserved for issuance pursuant to equity awards under the Noble Corporation 2021 Long-Term Incentive Plan.

A large percentage of the Ordinary Shares (or warrants exercisable for Ordinary Shares) are held by a relatively small number of investors. Noble Parent entered into (i) the Equity Registration Rights Agreement (as

 

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defined herein) with certain parties who received Ordinary Shares under the Plan associated with the Chapter 11 reorganization and (ii) the Pacific Drilling Merger RRA (as defined herein) with the Pacific Drilling Merger RRA Holders (as defined herein), in each case pursuant to which it has agreed to file a registration statement with the SEC to facilitate potential future sales of such Ordinary Shares by them.

Sales of a substantial number of the Ordinary Shares in the public markets, exercise of a substantial number of warrants or even the perception that these sales or exercises might occur (such as upon the filing of the aforementioned registration statements), could impair the ability of Noble Parent to raise capital for our operations through a future sale of, or pay for acquisitions using, equity securities.

Noble Parent may issue Ordinary Shares or other securities from time to time as consideration for future acquisitions and investments. If any such acquisition or investment is significant, the number of Ordinary Shares, or the number or aggregate principal amount, as the case may be, of other securities that Noble Parent may issue may in turn be substantial. Noble Parent may also grant registration rights covering those Ordinary Shares or other securities in connection with any such acquisitions and investments.

Noble Parent cannot predict the effect that future sales of Ordinary Shares will have on the price at which the Ordinary Shares trades or the size of future issuances of Ordinary Shares or the effect, if any, that future issuances will have on the market price of the Ordinary Shares. Sales of substantial amounts of the Ordinary Shares, or the perception that such sales could occur, may adversely affect the trading price of the Ordinary Shares.

Certain shareholders own a significant portion of our outstanding equity securities, and their interests may not always coincide with the interests of other holders of the Ordinary Shares or holders of the Notes.

As noted above, a large percentage of the Ordinary Shares are held by a relatively small number of investors. As a result, these investors could have significant influence over all matters presented to Noble Parent’s shareholders for approval, including election and removal of our directors, change in control transactions and the outcome of all actions requiring a majority shareholder approval. This influence would likely directly impact decisions made by Noble Parent as our sole shareholder.

The interests of these investors in Noble Parent may not always coincide with the interests of the other holders of the Ordinary Shares or holders of the Notes, and the concentration of control in these investors may limit the ability of the other holders of the Ordinary Shares or holders of the Notes to influence corporate matters. The concentration of ownership and voting power of these investors may also delay, defer or even prevent an acquisition by a third party or other change of control of Noble Parent and may make some transactions more difficult or impossible without their support, even if such events are in the best interests of Noble Parent’s other shareholders or holders of the Notes. In addition, the concentration of voting power may adversely affect the trading price of the Ordinary Shares, which could adversely affect the ability of Noble Parent to provide us with capital for our operations, if needed.

The potential for US Gulf of Mexico hurricane related windstorm damage, liabilities, or claims could result in uninsured losses, impacts to customer contracts and/or may cause us to alter our operating procedures during hurricane season, which could adversely affect our business.

Certain areas of the world such as the US Gulf of Mexico experience hurricanes and other extreme weather conditions on a relatively frequent basis. Some of our drilling rigs in the US Gulf of Mexico are located in areas that could cause them to be susceptible to damage and/or total loss by these storms. Damage caused by high winds, turbulent seas and other severe weather conditions could result in rig loss or damage (some of which may be uninsured), termination of drilling contracts for lost or severely damaged rigs or curtailment of operations on damaged drilling rigs with reduced or suspended dayrates for significant periods of time until the damage can be repaired, which could adversely affect our business. Moreover, our operating procedures may be altered during hurricane season in preparation for such severe weather conditions.

 

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Our drilling operations in the US Gulf of Mexico have been impacted by hurricanes. On August 29, 2021, the Noble Globetrotter II encountered severe weather conditions related to Hurricane Ida in the US Gulf of Mexico. In preparation for the approaching storm, the rig successfully secured the well it was drilling and detached the Lower Marine Riser Package (“LMRP”) from the blowout preventer without incident. The LMRP is a series of controls that sits above the blowout preventer. During transit to avoid the storm, a small number of riser joints and the LMRP separated from the rig. Although the riser and LMRP were successfully recovered and Noble Globetrotter II was cleared by regulators and has returned to service, and we have insurance coverage for property damage with a $10.0 million deductible, our insurance policies may not adequately cover our losses and related claims, which could adversely affect our business. Additionally, we have given force majeure notice to the customer of the Noble Globetrotter II in accordance with the governing drilling services contract, although there can be no assurance the customer will agree with our position.

Failure to effectively and timely respond to the impact of energy rebalancing could adversely affect our business, results of operations and cash flows.

Our long-term success depends on our ability to effectively respond to the impact of energy rebalancing, which could require adapting our fleet and business to potentially changing government requirements and customer preferences, as well as engaging with our customers to develop solutions to decarbonize oil and gas operations. If the energy rebalancing landscape changes faster than anticipated or in a manner that we do not anticipate, demand for our services could be adversely affected. Furthermore, if we fail to, or are perceived not to, effectively implement an energy rebalancing strategy, or if investors or financial institutions shift funding away from companies in fossil fuel-related industries, our access to capital or the market for our securities could be negatively impacted.

Risks Related to the Pacific Drilling Merger

The integration of Pacific Drilling into the combined company may not be as successful as anticipated, and the combined company may not achieve the intended benefits or do so within the intended timeframe.

The Pacific Drilling Merger involves numerous operational, strategic, financial, accounting, legal, tax and other risks, including potential liabilities associated with the acquired business. Difficulties in integrating Pacific Drilling into the combined company may result in the combined company performing differently than expected, in operational challenges or in the delay or failure to realize anticipated expense-related efficiencies, and could have an adverse effect on the financial condition, results of operations or cash flows of Noble. Potential difficulties that may be encountered in the integration process include, among other factors:

 

  

the inability to successfully integrate the businesses of Pacific Drilling into the combined company, operationally and culturally, in a manner that permits the combined company to achieve the full revenue and cost savings anticipated from the Pacific Drilling Merger;

 

  

complexities associated with managing a larger, more complex, integrated business;

 

  

difficulties in conforming accounting policies and standards to the combined entity;

 

  

not realizing anticipated synergies;

 

  

the inability to retain key employees and otherwise integrate personnel from the two companies and the loss of key employees;

 

  

potential unknown liabilities and unforeseen expenses associated with the Pacific Drilling Merger;

 

  

difficulty or inability to comply with the covenants of the debt of the combined company;

 

  

integrating relationships with customers, vendors and business partners;

 

  

performance shortfalls, including operating, safety, or environmental performance at one or both of the companies as a result of the diversion of management’s attention caused by completing the Pacific Drilling Merger and integrating Pacific Drilling’s operations into the combined company; and

 

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the disruption of, or the loss of momentum in, each company’s ongoing business or inconsistencies in standards, controls, procedures and policies.

Additionally, the success of the Pacific Drilling Merger will depend, in part, on the combined company’s ability to realize the anticipated benefits and cost savings from combining Noble’s and Pacific Drilling’s businesses. The anticipated benefits and cost savings of the Pacific Drilling Merger may not be realized fully or at all, may take longer to realize than expected or could have other adverse effects that Noble does not currently foresee. Some of the assumptions that Noble has made, such as the achievement of certain synergies, may not be realized.

As noted above, certain shareholders own a substantial percentage of the Ordinary Shares of Noble Parent. Certain of such shareholders may also have received additional Ordinary Shares in the Pacific Drilling Merger. As a result, the risks relating to concentrated ownership of the Ordinary Shares, described above in “—Risks Related to Our Business and Operations—Future sales or the availability for sale of substantial amounts of the Ordinary Shares, or the perception that these sales may occur, could adversely affect the trading price of the Ordinary Shares and could impair the ability of Noble Parent to raise capital through future sales of equity securities,” would be increased.

Financial and Tax Risks Related to Noble

We may record impairment charges on property and equipment, including rigs and related capital spares.

We evaluate the impairment of property and equipment, which include rigs and related capital spares, whenever events or changes in circumstances (including a decision to cold stack, retire or sell rigs) indicate that the carrying amount of an asset may not be recoverable. An impairment loss on our property and equipment may exist when the estimated undiscounted cash flows expected to result from the use of the asset and its eventual disposition are less than its carrying amount. Any impairment loss recognized represents the excess of the asset’s carrying value over the estimated fair value. As part of this analysis, we make assumptions and estimates regarding future market conditions. To the extent actual results do not meet our estimated assumptions, for a given rig or piece of equipment, we may take an impairment loss in the future. In addition, we may also take an impairment loss on capital spares and other capital equipment when we deem the value of those items has declined due to factors like obsolescence, deterioration or damage. Based upon our impairment analyses for the years ended December 31, 2021 and 2020, we recorded impairment charges of zero and $3.9 billion, respectively, on various rigs and certain capital spares during those periods. There can be no assurance that we will not have to take additional impairment charges in the future if depressed market conditions return, or that we will be able to return cold stacked rigs to service in the time frame and at the reactivation costs or at the dayrates that we projected. It is reasonably possible that the estimate of undiscounted cash flows may change in the near term, resulting in the need to write down the affected assets to their corresponding estimated fair values.

The Revolving Credit Agreement contains various restrictive covenants limiting the discretion of our management in operating our business.

The Revolving Credit Agreement contains various restrictive covenants that may limit our management’s discretion in certain respects. In particular, the Revolving Credit Agreement limits Finco’s ability and the ability of its restricted subsidiaries to, among other things and subject to certain limitations and exceptions, (i) incur, assume or guarantee additional indebtedness; (ii) pay dividends or distributions on capital stock or redeem or repurchase capital stock; (iii) make investments; (iv) repay, redeem or amend certain indebtedness; (v) sell stock of its subsidiaries; (vi) transfer or sell assets; (vii) create, incur or assume liens; (viii) enter into transactions with certain affiliates; (ix) merge or consolidate with or into any other person or undergo certain other fundamental changes; and (x) enter into certain burdensome agreements. In addition, the Revolving Credit Agreement obligates Finco and its restricted subsidiaries to comply with certain financial maintenance covenants and, under certain conditions, to make mandatory prepayments and reduce the amount of credit available under the Revolving Credit Facility, all as described in “Management’s Discussion and Analysis of Financial Condition

 

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and Results of Operations—Liquidity and Capital Resources—Post-emergence Debt—Senior Secured Revolving Credit Facility.” Such mandatory prepayments and commitment reductions may affect cash available for use in the Company’s business. Our failure to comply with these covenants could result in an event of default which, if not cured or waived, could result in all obligations under the Revolving Credit Facility to be declared due and payable immediately and all commitments thereunder to be terminated.

The phase-out and replacement of LIBOR with an alternative reference rate may adversely affect financial markets and the interest rate we pay on our floating rate debt.

The loans outstanding under the Revolving Credit Facility bear interest at a rate per annum equal to the applicable margin plus, at Finco’s option, either: (i) the reserve-adjusted London Interbank Offered Rate (“LIBOR”) or (ii) a base rate. On March 5, 2021, the Financial Conduct Authority in the UK issued an announcement on the future cessation or loss of representativeness for LIBOR benchmark settings currently published by ICE Benchmark Administration. The announcement confirmed that LIBOR will either cease to be provided by any administrator or will no longer be representative after December 31, 2021 for all non-USD LIBOR reference rates, and for certain short-term USD LIBOR reference rates, and after June 30, 2023 for other reference rates. While the Revolving Credit Facility contains hardwired “fallback” provisions providing for an alternative reference rate upon the occurrence of certain events related to the phase-out of LIBOR, the alternative reference rate plus any associated spread adjustment may result in interest rates higher than LIBOR. As a result, our interest expense could increase on our floating rate debt. In addition, the overall financial markets may be disrupted as a result of the phase-out or replacement of LIBOR. Uncertainty as to the nature of such potential phase-out and alternative reference rates or disruption in the financial market could have an adverse effect on our financial condition, results of operations and cash flows.

A loss of a major tax dispute or a successful tax challenge to our operating structure, intercompany pricing policies or the taxable presence of our subsidiaries in certain countries could result in a higher tax rate on our worldwide earnings, which could result in a material adverse effect on our financial condition and results of operations.

Income tax returns that we file will be subject to review and examination. We recognize the benefit of income tax positions we believe are more likely than not to be sustained upon challenge by a tax authority. If any tax authority successfully challenges our operational structure, intercompany pricing policies or the taxable presence of our subsidiaries in certain countries, if the terms of certain income tax treaties are interpreted in a manner that is adverse to our structure, or if we lose a material tax dispute in any country, our effective tax rate on our worldwide earnings could increase substantially and result in a material adverse effect on our financial condition.

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

We cannot provide any assurances as to what our consolidated effective income tax rate will be because of, among other matters, uncertainty regarding the nature and extent of our business activities in any particular jurisdiction in the future and the tax laws of such jurisdictions, as well as potential changes in the UK, US, Switzerland, Luxembourg and other tax laws, regulations or treaties or the interpretation or enforcement thereof, changes in the administrative practices and precedents of tax authorities or any reclassification or other matter (such as changes in applicable accounting rules) that increases the amounts we have provided for income taxes or deferred tax assets and liabilities in our consolidated financial statements. For example, certain countries within which we operate or own substantial assets have enacted changes to their tax laws in response to the Organization for Economic Cooperation and Development’s (“OECD”) ongoing Base Erosion and Profit Shifting initiatives and these and other countries may enact changes to their tax laws or practices in the future (prospectively or retroactively), which may have a material adverse effect on our financial position, operating results and/or cash flows.

 

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In addition, as a result of frequent changes in the taxing jurisdictions in which our drilling rigs are operated and/or owned, changes in the overall level of our income and changes in tax laws, our consolidated effective income tax rate may vary substantially from one reporting period to another. 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. 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. If we are unable to mitigate the negative consequences of any change in law, audit, business activity or other matter, this could cause our consolidated effective income tax rate to increase and cause a material adverse effect on our financial position, operating results and/or cash flows.

Pension expenses associated with our retirement benefit plans may fluctuate significantly depending upon changes in actuarial assumptions, future investment performance of plan assets and legislative or other regulatory actions.

A portion of our current and retired employee population is covered by pension and other post-retirement benefit plans, the costs of which are dependent upon various assumptions, including estimates of rates of return on benefit plan assets, discount rates for future payment obligations, mortality assumptions, rates of future cost growth and trends for future costs. In addition, funding requirements for benefit obligations of our pension and other post-retirement benefit plans are subject to legislative and other government regulatory actions. Future changes in estimates and assumptions associated with our pension and other post-retirement benefit plans could have a material adverse effect on our financial condition, results of operations, cash flows and/or financial disclosures.

Regulatory and Legal Risks Related to Noble

Governmental laws and regulations may add to our costs, result in delays, or limit our drilling activity.

Our business is affected by public policy and laws and regulations relating to the energy industry in the geographic areas where we operate.

The drilling industry is dependent on demand for services from the oil and gas exploration and production industry, and accordingly, we are directly affected by the adoption of laws and regulations that for economic, environmental or other policy reasons curtail exploration and development drilling for oil and gas. We may be required to make significant capital expenditures to comply with governmental laws and regulations. Governments in some foreign countries are increasingly active in regulating and controlling the ownership of concessions, the exploration for oil and gas, and other aspects of the oil and gas industries.

There is increasing attention in the United States and worldwide concerning the issue of climate change and the effect of greenhouse gases (“GHGs”) and other sustainability and energy rebalancing matters, such as the phase-out of fossil fuel powered vehicles. This increased attention may result in new environmental laws or regulations that may unfavorably impact us, our suppliers and our customers. However, it is not possible at this time to predict the timing and effect of climate change, the adoption of additional GHG legislation, regulations or other measures at the federal, state or local levels. For more information on climate change, see “Business—Governmental Regulations and Environmental Matters—Climate Change.”

The modification of existing laws or regulations or the adoption of new laws or regulations that result in the curtailment of exploratory or developmental drilling for oil and gas could materially and adversely affect our operations by limiting drilling opportunities increasing our cost of doing business, discouraging our customers from drilling for hydrocarbons, disrupting revenue through permitting or similar delays, or subjecting us to liability. For example, on January 20, 2021, the Acting Secretary for the Department of the Interior signed an order effectively suspending new fossil fuel leasing and permitting on federal lands, including in the US Gulf of

 

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Mexico, for 60 days. Then on January 27, 2021, President Biden issued an executive order indefinitely suspending new oil and natural gas leases on public lands or in offshore waters pending completion of a comprehensive review and reconsideration of federal oil and gas permitting and leasing practices. Several states filed lawsuits challenging the suspension and on June 15, 2021, a judge in the US District Court for the Western District of Louisiana issued a nationwide temporary injunction blocking the suspension. The Department of the Interior appealed the US District Court’s ruling, but resumed oil and gas leasing pending resolution of the appeal. In November 2021, the Department of the Interior completed its review and issued a report on the federal oil and gas leasing program. The Department of the Interior’s report recommends several changes to federal leasing practices, including changes to royalty payments, bidding, and bonding requirements. In addition, on November 19, 2021, the US House of Representatives passed the Build Back Better Act. Among other things, the Build Back Better Act would prohibit the Secretary of the Interior from issuing a lease or any other authorization for the exploration, development, or production of oil or natural gas in several areas of the Outer Continental Shelf, including the Eastern Gulf of Mexico. However, the Build Back Better Act has yet to be approved by the US Senate. At this time, it is uncertain whether, and in what form, the Build Back Better Act may become law.

If the Department of the Interior succeeds on its appeal of the US District Court’s decision and reinstitutes a leasing suspension, the suspension could reduce demand for our services. Further, to the extent that the Department of the Interior’s report, Senate approval of the Build Back Better Act or other initiatives to reform federal leasing practices result in the development of additional restrictions on offshore drilling, limitations on the availability of offshore leases, or restrictions on the ability to obtain required permits, it could have a material adverse impact on our operations by reducing drilling opportunities and the demand for our services.

Increasing attention to environmental, social and governance matters and climate change may impact our business and financial results.

In recent years, increasing attention has been given to corporate activities related to environmental, social and governance (“ESG”) matters in public discourse and the investment community. A number of advocacy groups, both domestically and internationally, have campaigned for governmental and private action to promote change at public companies related to ESG matters, including through the investment and voting practices of investment advisers, public pension funds, universities and other members of the investing community. These activities include increasing attention and demands for action related to climate change and energy rebalancing matters, such as promoting the use of substitutes to fossil fuel products and encouraging the divestment of fossil fuel equities, as well as pressuring lenders and other financial services companies to limit or curtail activities with fossil fuel companies. If this were to continue, it could have a material adverse effect on Noble Parent’s ability to access equity capital markets. Members of the investment community have begun to screen companies such as ours for sustainability performance, including practices related to GHGs and climate change. If we are unable to find economically viable, as well as publicly acceptable, solutions that reduce our GHG emissions and/or GHG intensity for new and existing projects, we could experience additional costs or financial penalties, delayed or cancelled projects, and/or reduced production and reduced demand for hydrocarbons, which could have a material adverse effect on our earnings, cash flows and financial condition.

In addition, our business could be impacted by governmental initiatives to address greenhouse gases and climate change and incentives to conserve energy or use alternative energy sources. For example, the Build Back Better Act, passed by the US House of Representatives and supported by President Biden, includes incentives to increase wind and solar electric generation and encourage consumers to use these alternative energy sources. At this time, it is uncertain whether, and in what form, the Build Back Better Act may become law. However, the Build Back Better Act or similar state or federal initiatives to incentivize a shift away from fossil fuels could reduce demand for hydrocarbons, thereby reducing demand for our services and causing a material adverse effect on our earnings, cash flows and financial condition.

 

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Any violation of anti-bribery or anti-corruption laws, including the Foreign Corrupt Practices Act, the United Kingdom Bribery Act, or similar laws and regulations could result in significant expenses, divert management attention, and otherwise have a negative impact on us.

We operate in countries known to have a reputation for corruption. We are subject to the risk that we, our affiliated entities or their respective officers, directors, employees and agents may take action determined to be in violation of such anti-corruption laws, including the US Foreign Corrupt Practices Act of 1977 (the “FCPA”), the United Kingdom Bribery Act 2010 (the “UK Bribery Act”), the United Kingdom Modern Slavery Act 2015 (the “UK Modern Slavery Act”) and similar laws in other countries. Any violation of the FCPA, UK Bribery Act, UK Slavery Act or other applicable anti-corruption laws could result in substantial fines, sanctions, civil and/or criminal penalties and curtailment of operations in certain jurisdictions and might adversely affect our business, financial condition and results of operations. In addition, actual or alleged violations could damage our reputation and ability to do business. Further, detecting, investigating and resolving actual or alleged violations is expensive and can consume significant time and attention of our senior management.

Changes in, compliance with, or our failure to comply with the certain laws and regulations may negatively impact our operations and could have a material adverse effect on our results of operations.

Our operations are subject to various laws and regulations in countries in which we operate, including laws and regulations relating to:

 

  

the environment and the health and safety of personnel;

 

  

the importing, exporting, equipping and operation of drilling rigs;

 

  

currency exchange controls;

 

  

oil and gas exploration and development;

 

  

taxation of offshore earnings and earnings of expatriate personnel; and

 

  

use and compensation of local employees and suppliers by foreign contractors.

Public and governmental scrutiny of the energy industry has resulted in increased regulations being proposed and often implemented. In addition, existing regulations might be revised or reinterpreted, new laws, regulations and permitting requirements might be adopted or become applicable to us, our rigs, our customers, our vendors or our service providers, and future changes in laws and regulations could significantly increase our costs and could have a material adverse effect on our business, financial condition and results of operations. In addition, we may be required to post additional surety bonds to secure performance, tax, customs and other obligations relating to our rigs in jurisdictions where bonding requirements are already in effect and in other jurisdictions where we may operate in the future. These requirements would increase the cost of operating in these countries, which could materially adversely affect our business, financial condition and results of operations.

From time to time, new rules, regulations and requirements regarding oil and gas development have been proposed and implemented by the Bureau of Ocean Energy Management (“BOEM”), the Bureau of Safety and Environmental Enforcement (“BSEE”) or the United States Congress, as well as other jurisdictions outside the United States, that could materially limit or prohibit, and increase the cost of, offshore drilling. For example, in July 2016, BOEM and BSEE finalized a rule revising and adding requirements for drilling on the US Arctic Outer Continental Shelf. Similarly, in April 2016, BSEE announced a final blowout preventer systems and well control rule. BSEE also finalized a rule in September 2016 concerning production safety systems for oil and natural gas operations on the Outer Continental Shelf. BSEE issued final rules amending both the September 2016 production safety systems rule and the April 2016 blowout preventer systems and well control rule in September 2018 and May 2019, respectively. In addition, BOEM released a Notice to Lessees and Operators in the Outer Continental Shelf (“NTL”) in September 2016 that updated offshore bonding requirements. The NTL was only partially implemented before being rescinded and replaced by a proposed rule addressing offshore

 

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bonding published in October 2020. However, on January 20, 2021, President Biden issued executive orders freezing the issuance of new rules pending further review and directing all executive departments and agencies to review and consider suspending, revising, or rescinding all regulations issued between January 20, 2017 and January 20, 2021 determined to be inconsistent with President Biden’s environmental and climate goals. To the extent these recent proposed and final rules are reviewed and determined to be inconsistent under the executive orders, BOEM and BSEE could issue new rules reinstating the requirements of the 2016 rules and/or reimplement the NTL. In the federal government’s most recent list of potential regulatory actions for 2022, BSEE lists its plans to propose rules finalizing the decommissioning obligations originally proposed in October 2020 and BOEM lists its plans to propose a new rule in respect of financial assurance.

We are also subject to increasing regulatory requirements and scrutiny in the North Sea jurisdictions and other countries. New rules, regulations and requirements, or a return to the requirements of the 2016 versions of the BSEE and BOEM regulations, including the adoption of new safety requirements and policies relating to the approval of drilling permits, restrictions on oil and gas development and production activities in the US Gulf of Mexico and elsewhere, implementation of safety and environmental management systems, mandatory third party compliance audits, and the promulgation of numerous Notices to Lessees or similar new regulatory requirements outside of the United States, may impact our operations by causing increased costs, delays and operational restrictions. If new regulations, policies, operating procedures and the possibility of increased legal liability resulting from the adoption or amendment of rules and regulations applicable to our operations in the United States or other jurisdictions are viewed by our current or future customers as a significant impairment to expected profitability on projects, then they could discontinue or curtail their offshore operations in the impacted region, thereby adversely affecting our operations by limiting drilling opportunities or imposing materially increased costs.

We could also be affected by challenges and restrictions to offshore operations by environmental groups, costal states and the federal government. For example, in December 2018, environmental groups challenged incidental harassment authorizations issued by the National Marine Fisheries Service that allow companies to conduct air gun seismic surveys for oil and gas exploration off the Atlantic coast. The attorney generals for ten US coastal states also intervened as plaintiffs. The litigation concluded in October 2020 and the authorizations expired in November 2020. Restrictions on authorizations needed to conduct seismic surveys could impact our customers’ ability to identify oil and gas reserves, thereby reducing demand for our services. Several coastal states have also taken steps to prohibit offshore drilling. For example, California passed laws in September 2018 barring the construction of new oil drilling-related infrastructure in state waters. Similarly, in November 2018, voters in Florida approved an amendment to the state constitution that would ban oil and gas drilling in offshore state waters. Such initiatives could reduce opportunities for our customers and thereby reduce demand for our services. In addition, the federal government has taken steps to restrict offshore drilling opportunities. For example, on January 20, 2021, the Acting Secretary for the Department of the Interior signed an order effectively suspending new fossil fuel leasing and permitting on federal lands, including in the US Gulf of Mexico, for 60 days. Then on January 27, 2021, President Biden issued an executive order indefinitely suspending new oil and natural gas leases on public lands or in offshore waters pending completion of a comprehensive review and reconsideration of federal oil and gas permitting and leasing practices. Several states filed lawsuits challenging the suspension and on June 15, 2021, a judge in the US District Court for the Western District of Louisiana issued a nationwide temporary injunction blocking the suspension. The Department of the Interior appealed the US District Court’s ruling, but resumed oil and gas leasing pending resolution of the appeal. In November 2021, the Department of the Interior completed its review and issued a report on the federal oil and gas leasing program. The Department of the Interior’s report recommends several changes to federal leasing practices, including changes to royalty payments, bidding, and bonding requirements. In addition, on November 19, 2021, the US House of Representatives passed the Build Back Better Act. Among other things, the Build Back Better Act would prohibit the Secretary of the Interior from issuing a lease or any other authorization for the exploration, development, or production of oil or natural gas in several areas of the Outer Continental Shelf, including the Eastern Gulf of Mexico. However, the Build Back Better Act has yet to be approved by the US Senate. At this time, it is uncertain whether, and in what form, the Build Back Better Act may become law.

 

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If the Department of the Interior succeeds on its appeal of the US District Court’s decision and reinstitutes a leasing suspension, the suspension could reduce demand for our services. Further, to the extent that the Department of the Interior’s report, Senate approval of the Build Back Better Act or other initiatives to reform federal leasing practices result in the development of additional restrictions on offshore drilling, limitations on the availability of offshore leases, or restrictions on the ability to obtain required permits, it could have a material adverse impact on our operations by reducing drilling opportunities and the demand for our services.

Adverse effects may continue as a result of the uncertainty of ongoing inquiries, investigations and court proceedings, or additional inquiries and proceedings by federal or state regulatory agencies or private plaintiffs. In addition, we cannot predict the outcome of any of these inquiries or whether these inquiries will lead to additional legal proceedings against us, civil or criminal fines or penalties, or other regulatory action, including legislation or increased permitting requirements. Legal proceedings or other matters against us, including environmental matters, suits, regulatory appeals, challenges to our permits by citizen groups and similar matters, might result in adverse decisions against us. The result of such adverse decisions, both individually or in the aggregate, could be material and may not be covered fully or at all by insurance.

Our operations are subject to numerous laws and regulations relating to the protection of the environment and of human health and safety, and compliance with these laws and regulations could impose significant costs and liabilities that exceed our current expectations.

Substantial costs, liabilities, delays and other significant issues could arise from environmental, health and safety laws and regulations covering our operations, and we may incur substantial costs and liabilities in maintaining compliance with such laws and regulations. Our operations are subject to extensive international conventions and treaties, and national or federal, state and local laws and regulations, governing environmental protection, including with respect to the discharge of materials into the environment and the security of chemical and industrial facilities. These laws govern a wide range of environmental issues, including:

 

  

the release of oil, drilling fluids, natural gas or other materials into the environment;

 

  

air emissions from our drilling rigs or our facilities;

 

  

handling, cleanup and remediation of solid and hazardous wastes at our drilling rigs or our facilities or at locations to which we have sent wastes for disposal;

 

  

restrictions on chemicals and other hazardous substances; and

 

  

wildlife protection, including regulations that ensure our activities do not jeopardize endangered or threatened animals, fish and plant species, nor destroy or modify the critical habitat of such species.

Various governmental authorities have the power to enforce compliance with these laws and regulations and the permits issued under them, oftentimes requiring difficult and costly actions. Failure to comply with these laws, regulations and permits, or the release of oil or other materials into the environment, may result in the assessment of administrative, civil and criminal penalties, the imposition of remedial obligations, the imposition of stricter conditions on or revocation of permits, the issuance of moratoria or injunctions limiting or preventing some or all of our operations, delays in granting permits and cancellation of leases, or could affect our relationship with certain consumers.

There is an inherent risk of the incurrence of environmental costs and liabilities in our business, some of which may be material, due to the handling of our customers’ hydrocarbon products as they are gathered, transported, processed and stored, air emissions related to our operations, historical industry operations, and water and waste disposal practices. For example, we, as an operator of mobile offshore drilling units in navigable US waters and certain offshore areas, including the US Outer Continental Shelf, are liable for damages and for the cost of removing oil spills for which we may be held responsible, subject to certain limitations. Our operations may involve the use or handling of materials that are classified as environmentally hazardous. Environmental laws and regulations may expose us to liability for the conduct of or conditions caused by others

 

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or for acts that were in compliance with all applicable laws at the time they were performed. Joint, several or strict liability may be incurred without regard to fault under certain environmental laws and regulations for the remediation of contaminated areas and in connection with past, present or future spills or releases of natural gas, oil and wastes on, under, or from past, present or future facilities. Private parties may have the right to pursue legal actions to enforce compliance as well as to seek damages for non-compliance with environmental laws and regulations or for personal injury or property damage arising from our operations. In addition, increasingly strict laws, regulations and enforcement policies could materially increase our compliance costs and the cost of any remediation that may become necessary. Our insurance may not cover all environmental risks and costs or may not provide sufficient coverage if an environmental claim is made against us.

Our business may be adversely affected by increased costs due to stricter pollution control equipment requirements or liabilities resulting from non-compliance with required operating or other regulatory permits. Also, we might not be able to obtain or maintain from time to time all required environmental regulatory approvals for our operations. If there is a delay in obtaining any required environmental regulatory approvals, or if we fail to obtain and comply with them, the operation or construction of our facilities could be prevented or become subject to additional costs. In addition, the steps we could be required to take to bring certain facilities into regulatory compliance could be prohibitively expensive, and we might be required to shut down, divest or alter the operation of those facilities, which might cause us to incur losses.

We make assumptions and develop expectations about possible expenditures related to environmental conditions based on current laws and regulations and current interpretations of those laws and regulations. If the interpretation of laws or regulations, or the laws and regulations themselves, change, our assumptions may change, and new capital costs may be incurred to comply with such changes. In addition, new environmental laws and regulations might adversely affect our operations, as well as waste management and air emissions. For instance, governmental agencies could impose additional safety requirements, which could affect our profitability. Further, new environmental laws and regulations might adversely affect our customers, which in turn could affect our profitability.

Finally, although some of our drilling rigs will be separately owned by our subsidiaries, under certain circumstances a parent company and all of the unit-owning affiliates in a group under common control engaged in a joint venture could be held liable for damages or debts owed by one of the affiliates, including liabilities for oil spills under environmental laws. Therefore, it is possible that we could be subject to liability upon a judgment against us or any one of our subsidiaries.

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

Certain of our employees and contractors in international markets are represented by labor unions or work under collective bargaining or similar agreements, which are subject to periodic renegotiation. Efforts may be made from time to time to unionize portions of our workforce. In addition, we may be subject to strikes or work stoppages and other labor disruptions in the future. Additional unionization efforts, new collective bargaining agreements or work stoppages could materially increase our costs, reduce our revenues or limit our operational flexibility.

Any failure to comply with the complex laws and regulations governing international trade could adversely affect our operations.

The shipment of goods, services and technology across international borders subjects our business to extensive trade laws and regulations. Import activities are governed by unique customs laws and regulations in each of the countries of operation. Moreover, many countries, including the United States, control the export and re-export of certain goods, services and technology and impose related export recordkeeping and reporting obligations. Governments also may impose economic sanctions against certain countries, persons and other

 

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entities that may restrict or prohibit transactions involving such countries, persons and entities. US sanctions, in particular, are targeted against certain countries that are heavily involved in the petroleum and petrochemical industries, which includes drilling activities.

The laws and regulations concerning import activity, export recordkeeping and reporting, export control and economic sanctions are complex and constantly changing. These laws and regulations may be enacted, amended, enforced or interpreted in a manner materially impacting our operations. Shipments can be delayed and denied export or entry for a variety of reasons, some of which are outside our control and some of which may result from failure to comply with existing legal and regulatory regimes. Shipping delays or denials could cause unscheduled operational downtime. Any failure to comply with applicable legal and regulatory trading obligations could also result in criminal and civil penalties and sanctions, such as fines, imprisonment, debarment from government contracts, seizure of shipments and loss of import and export privileges.

Currently, we do not, nor do we intend to, operate in countries that are subject to significant sanctions and embargoes imposed by the US government or identified by the US government as state sponsors of terrorism, such as the Crimean region of the Ukraine, Cuba, Iran, North Korea and Syria. The US sanctions and embargo laws and regulations vary in their application, as they do not all apply to the same covered persons or proscribe the same activities, and such sanctions and embargo laws and regulations may be amended or strengthened over time. There can be no assurance that we will be in compliance in the future, particularly as the scope of certain laws may be unclear and may be subject to changing interpretations. Any such violation could result in fines or other penalties and could result in some investors deciding, or being required, to divest their interest, or not to invest, in us. In addition, certain institutional investors may have investment policies or restrictions that prevent them from holding securities of companies that have contracts with countries identified by the US government as state sponsors of terrorism or with countries that are otherwise subject to US sanctions and embargo laws. In addition, our reputation and the market for our securities may be adversely affected if we engage in certain other activities, such as entering into drilling contracts with individuals or entities in countries subject to significant US sanctions and embargo laws that are not controlled by the governments of those countries, or engaging in operations associated with those countries pursuant to contracts with third parties that are unrelated to those countries or entities controlled by their governments.

We are subject to litigation that could have an adverse effect on us.

We are, from time to time, involved in various litigation matters. These matters may include, among other things, contract disputes, personal injury claims, asbestos and other toxic tort claims, environmental claims or proceedings, employment matters, issues related to employee or representative conduct, governmental claims for taxes or duties, and other litigation that arises in the ordinary course of our business. Although we intend to defend or pursue such matters vigorously, we cannot predict with certainty the outcome or effect of any claim or other litigation matter, and there can be no assurance as to the ultimate outcome of any litigation. Litigation may have an adverse effect on us because of potential negative outcomes, legal fees, the allocation of management’s time and attention, and other factors.

We could also face increased climate-related litigation with respect to our operations both in the US and around the world. Governmental and other entities in various US states, such as California and New York, have filed lawsuits against coal, gas oil and petroleum companies. These suits allege damages as a result of climate change, and the plaintiffs are seeking unspecified damages and abatement under various tort theories. Similar lawsuits may be filed in other jurisdictions both in the US and globally. Though we are not currently a party to any such lawsuit, these suits present uncertainty regarding the extent to which companies who are not producing oil or gas, but who are engaged in such production, such as offshore drillers, face an increased risk of liability stemming from climate change, which risk would also adversely impact the oil and gas industry and impact demand for our services.

 

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Risks Related to the Business Combination with Maersk Drilling

The Business Combination may not be as successful as anticipated, and the combined company may not achieve the intended benefits or do so within the intended timeframe and the integration costs may exceed estimates.

The Business Combination involves numerous operational, strategic, financial, accounting, legal, tax and other risks, including potential liabilities associated with the integrated businesses. Difficulties in integrating the business practices and operations of Noble and Maersk Drilling may result in the combined company performing differently than expected, in operational challenges or in the delay or failure to realize anticipated expense-related efficiencies, and could have an adverse effect on the financial condition, results of operations or cash flows of Noble and Maersk Drilling. Potential difficulties that may be encountered in the integration process include, among other factors:

 

  

the inability to successfully integrate the businesses of Noble and Maersk Drilling, operationally and culturally, in a manner that permits the combined company to achieve the cost savings anticipated from the Business Combination;

 

  

complexities, including demands on management, associated with managing a larger, more complex, integrated business;

 

  

difficulties in integrating Maersk Drilling’s and Noble’s restrictive enterprise resource planning software;

 

  

attempts by third parties to terminate or alter their contracts with the combined company, including as a result of change of control provisions;

 

  

the inability to retain key employees and otherwise integrate personnel from the two companies;

 

  

potential unknown liabilities and unforeseen expenses associated with the Business Combination;

 

  

regulatory authorities, including competition authorities may impose requirements, limitations or costs on, or require divestitures or place restrictions on the conduct of, Topco’s business after the completion of the Business Combination;

 

  

difficulty or inability to comply with the covenants of the debt of the combined company;

 

  

difficulty or inability in refinancing existing indebtedness of Noble or Maersk Drilling as it comes due, including certain indebtedness of Maersk Drilling that will become current in the fourth quarter of 2022 and is due to mature in the fourth quarter of 2023;

 

  

integrating relationships with customers, vendors and business partners;

 

  

performance shortfalls, including operating, safety, or environmental performance at one or both of the companies as a result of the diversion of management’s and employees’ attention caused by completing the Business Combination and integrating Noble’s and Maersk Drilling’s operations into the combined company; and

 

  

the disruption of, or the loss of momentum in, each company’s ongoing business or inconsistencies in standards, controls, procedures and policies.

Additionally, the success of the Business Combination will depend, in part, on the combined company’s ability to realize the anticipated benefits and cost savings from combining Noble’s and Maersk Drilling’s businesses. Although the parties expect to realize run-rate annual cost-synergies of $125 million within two years of the closing of the Business Combination, Noble’s ability to realize such synergies may be affected by a number of factors, including, but not limited to, the use of more cash or other financial resources on integration and implementation activities than anticipated; unanticipated increases in expenses unrelated to the Business Combination, which may offset the expected cost savings and other synergies from the Business Combination; and Noble’s ability to eliminate duplicative back office overhead and redundant selling, general, and administrative functions. The anticipated benefits and cost savings of the Business Combination may not be realized fully or at all, may take longer to realize than expected or could have other adverse effects that neither Noble nor Maersk Drilling currently foresee. In addition, the anticipated benefits and cost savings of the Business

 

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Combination as well as the related integration costs are based on a number of estimates and assumptions that are inherently uncertain and subject to risks that could cause the actual results to differ materially from those contained in such cost estimates. Some of the assumptions that Noble and Maersk Drilling have made, such as the achievement of certain synergies, may not be realized within the anticipated timeframe, or at all.

If the combined company fails to realize the anticipated synergies or other benefits or recognize further synergies or benefits, or the estimated integration costs of the Business Combination are exceeded, the business rationale of the Business Combination could not be realized and the value of the shareholders’ investment into the combined company could decrease.

The Business Combination is conditioned on the receipt of certain required approvals and governmental and regulatory consents, which, if delayed, not granted or granted with unfavorable conditions, may delay or jeopardize the completion of the Business Combination, result in additional expenditures of money and resources and/or reduce the anticipated benefits of the Business Combination.

The completion of the Business Combination is generally conditioned on, among other things, clearance by antitrust and foreign direct investment authorities in the United Kingdom and Norway and Denmark, as well as certain other jurisdictions as agreed between the parties. The governmental agencies from which the parties seek certain of these approvals and consents have broad discretion in administering the governing regulations. Neither Noble Parent nor Maersk Drilling can provide any assurance that all required approvals and consents will be obtained. Moreover, as a condition to the approvals, the governmental agencies may impose requirements, limitations or costs on, or require divestitures or place restrictions on the conduct of, Topco’s business after the completion of the Business Combination. These requirements, limitations, costs, divestitures or restrictions could jeopardize or delay the completion of the Business Combination or reduce the anticipated benefits of the Business Combination. Further, no assurance can be given as to the terms, conditions and timing of the approvals. If Noble Parent and Maersk Drilling agree to any material requirements, limitations, costs, divestitures or restrictions in order to obtain any approvals required to consummate the Business Combination, these requirements, limitations, costs, divestitures or restrictions could adversely affect Noble Parent’s ability to integrate Maersk Drilling’s operations with Noble’s operations and/or reduce the anticipated benefits of the Business Combination. This could have a material adverse effect on Topco’s business and results of operations. For example, the merger control process for obtaining clearance in the UK remains ongoing with constructive discussions continuing between Noble Parent, Maersk Drilling, and the UK CMA ahead of the UK CMA expectedly publishing their phase 1 decision on April 22, 2022. While the UK CMA is yet to take its phase 1 decision, the parties expect that it will be necessary to divest certain jackup rigs currently located in the North Sea (the “Remedy Rigs”) to obtain conditional antitrust clearance in phase 1 from the UK CMA. The parties currently expect the Remedy Rigs to comprise the Noble Hans Deul, Noble Sam Hartley, Noble Sam Turner, Noble Houston Colbert, and a CJ-70 design drilling rig which, at this point, the parties believe is likely to be the Mærsk Innovator, although it is possible the Noble Lloyd Noble could be required to achieve phase 1 clearance. On this basis, the parties have started to examine different options to divest the Remedy Rigs. Though the parties expect that they will be required to divest the Remedy Rigs in order to gain UK CMA clearance, the duration and outcome of the UK CMA review process remains uncertain. The Business Combination has received antitrust approvals from Norway, Brazil and the Republic of Trinidad & Tobago. The Business Combination has also received approval from the Danish Business Authority and the Secretary of State of the United Kingdom with respect to regulations pertaining to foreign direct investment, and no other approvals relating to foreign direct investment are required.

The Business Combination remains subject to conditions that neither Noble Parent nor Maersk Drilling can control.

The Business Combination is subject to conditions, including, among others, the adoption of the Business Combination Agreement by the affirmative vote of at least two-thirds of the votes cast at Noble Parent’s extraordinary general shareholder meeting (the “General Meeting”), the termination of waiting periods and the

 

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receipt of approvals or clearances under applicable antitrust laws and applicable foreign direct investment laws, the Business Combination occurring on or before August 10, 2022 (the “End Date”); provided, however, that if all of the conditions to the Offer, other than the condition relating to antitrust approvals, have been satisfied or are capable of being satisfied at such time, the End Date will automatically be extended to November 10, 2022; further provided that if all of the conditions to the Offer, other than the condition relating to antitrust approvals, have been satisfied or are capable of being satisfied at such time, the End Date will automatically be extended to February 10, 2023, and authorization of the listing of the combined company’s shares on NYSE and Nasdaq Copenhagen. Noble Parent’s obligation to consummate the Business Combination is also subject to the Minimum Acceptance Condition.

If the conditions to the Business Combination are not satisfied or waived, then the Business Combination may not be consummated.

Each of Noble Parent and Maersk Drilling may waive one or more of the conditions to the Business Combination without shareholder approval.

Each of Noble Parent and Maersk Drilling may determine to waive, in whole or in part, one or more of the conditions to its obligations to complete the Business Combination, to the extent permitted by applicable laws. Each of Noble Parent and Maersk Drilling will evaluate the materiality of any such waiver and its effect on its shareholders in light of the facts and circumstances at the time to determine whether any amendment of the proxy statement/prospectus in Topco’s Registration Statement on Form S-4, initially filed on December 20, 2021 and declared effective on April 11, 2022 (the “Form S-4 Registration Statement”), and the offering document relating to the Offer (the “exchange offer prospectus”) and, in the case of Noble Parent, any resolicitation of proxies is required or warranted. Each of Noble Parent and Maersk Drilling may waive any of these conditions prior to the General Meeting, and if any such waiver is material, the proxy statement/prospectus in the Form S-4 Registration Statement and the exchange offer prospectus will be amended as necessary to reflect such waiver. If either of Noble Parent and Maersk Drilling determines to waive any conditions after receiving shareholder approval at the General Meeting, it may have the discretion to complete the Business Combination without seeking further shareholder approval.

Because the Exchange Ratios are fixed, the market value of the Topco Shares received by Noble Parent shareholders or Maersk Drilling shareholders as part of the Business Combination may be less than the market value of the Ordinary Shares or Maersk Drilling Shares that such holder held prior to the completion of the Business Combination.

Noble Parent shareholders will receive one Topco Share for each of their Ordinary Shares in the Maersk Drilling Merger and Maersk Drilling shareholders who tender their Maersk Drilling Shares in the Offer will receive 1.6137 Topco Shares for each Maersk Drilling Share tendered and not withdrawn. These Exchange Ratios are fixed and will not vary even if the market price of Ordinary Shares or Maersk Drilling Shares varies. Upon completion of the Business Combination, and assuming that all outstanding Maersk Drilling Shares are exchanged for Topco Shares in the Offer, former Noble Parent and Maersk Drilling shareholders will each own approximately 50% of the outstanding Topco Shares on a fully diluted basis, i.e., taking into consideration Topco Shares still to be issued, immediately after completion of the Business Combination. The market value of Ordinary Shares and Maersk Drilling Shares at the time of the completion of the Business Combination may vary significantly from the value on the date of the execution of the Business Combination Agreement, the date of this document, the date on which Ordinary Shares vote on the Maersk Drilling Merger, the date on which Maersk Drilling shareholders tender their shares in the Offer or the expiration of the period commencing as soon as practically possible after the offering circular, which refers to one or more prospectuses (or similar exemption document prepared in reliance on an applicable exemption under Regulation (EU) 2017/1129 of the European Parliament and of the Council of June 14, 2017, as amended, and the rules and regulations promulgated thereunder (the “EU Prospectus Regulation”) and in accordance with the requirements of Commission Delegated Regulation (EU) 2021/528 of 16 December 2020) to be prepared by Topco and/or Noble Parent pursuant to the

 

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EU Prospectus Regulation, and the Offer Document (as defined herein) have been approved by the DFSA with an expected duration of at least four weeks (the “Offer Period”). Because the Exchange Ratios will not be adjusted to reflect any changes in the market price of the Ordinary Shares or Maersk Drilling Shares, the value of the consideration paid to the Noble Parent shareholders in the Maersk Drilling Merger or to the Maersk Drilling shareholders who tender their shares in the Offer may be lower than the market value of their Ordinary Shares or Maersk Drilling Shares, respectively, on earlier dates.

Changes in share prices may result from a variety of factors that are beyond the control of Topco, Noble or Maersk Drilling, including their respective business, operations and prospects, market conditions, economic development, geopolitical events, regulatory considerations, governmental actions, legal proceedings and other developments. Market assessments of the benefits of the Business Combination and of the likelihood that the Business Combination will be completed, as well as general and industry-specific market and economic conditions, may also have an adverse effect on share prices.

In addition, it is possible that the Business Combination may not be completed until a significant period of time has passed after the General Meeting and the expiration of the Offer Period. As a result, the market values of the Ordinary Shares or Maersk Drilling Shares may vary significantly from the date of the General Meeting or the expiration of the Offer Period to the date of the completion of the Business Combination.

Investors are urged to obtain up-to-date prices for Ordinary Shares, which are admitted to trading and official listing on the NYSE under the symbol “NE” and Maersk Drilling Shares, which are listed on Nasdaq Copenhagen under the symbol “DRLCO” and securities code DK0061135753.

If Maersk Drilling shareholders do not tender their Maersk Drilling Shares in the Offer, Maersk Drilling shareholders may receive consideration in the Compulsory Purchase that is substantially different in form and/or value from the consideration that they would have received in the Offer.

If the Business Combination is consummated and Topco holds more than 90% of the outstanding Maersk Drilling Shares, Topco will initiate a squeeze-out of the minority shareholders of Maersk Drilling. The Compulsory Purchase would eliminate any minority shareholder interests in Maersk Drilling remaining after the settlement of the Offer. Due to the statutory legal framework applicable to the Compulsory Purchase, holders of Maersk Drilling Shares who do not exchange their shares in the Offer may receive a different (including a lower) amount or a different form of consideration than they would have received had they exchanged their Maersk Drilling Shares in the Offer. Furthermore, if the value of Topco Shares offered as compensation in the context of a Compulsory Purchase has declined after the completion of the Business Combination, there may be no obligation of Topco to pay Maersk Drilling shareholders who did not exchange their shares in the Offer the implied value of the offer consideration received by Maersk Drilling shareholders who exchanged their shares in the Offer.

Any failure by Topco to acquire more than 90% of the Maersk Drilling Shares could lead to Maersk Drilling not becoming a wholly-owned subsidiary of Topco, and might prevent the delisting of Maersk Drilling Shares from Nasdaq Copenhagen.

The closing of the Business Combination and the completion of the Offer is conditioned upon the satisfaction of the Minimum Acceptance Condition, unless waived by Topco in accordance with the terms of an offer document with respect to the Offer approved by the DFSA in accordance with the DFSA’s Executive Order on Takeover Bids, Executive Order no 636/2020 of 15 May 2020 (the “Danish Takeover Order” and such document, the “Offer Document”). Thus, at the completion of the Offer, Topco may own more than 80% (or, if lowered by Topco in its sole discretion, more than 70%) but 90% or less of the share capital and voting rights of Maersk Drilling. Pursuant to the Danish Companies Act, Topco must own more than 90% of the share capital and voting rights of Maersk Drilling to implement a compulsory purchase of the remaining outstanding Maersk Drilling Shares (Maersk Drilling Shares held in treasury being excluded for the purpose of the calculation).

 

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Whilst Topco may be able to exercise a Compulsory Purchase if it subsequently acquires more than 90% of the outstanding Maersk Drilling Shares and voting rights (excluding shares held in treasury), for instance where it acquires further Maersk Drilling Shares or where Maersk Drilling repurchases Maersk Drilling Shares, there can be no guarantee that this will happen. If Topco fails to acquire all of the issued and outstanding Maersk Drilling Shares, Maersk Drilling will not be a wholly-owned subsidiary of Topco and minority Maersk Drilling shareholders will have certain minority protection rights under Danish law and under the articles of association of Topco that will be adopted and take effect at the Acceptance Time. Any temporary or permanent delay in acquiring all Maersk Drilling Shares could adversely affect Topco’s ability to integrate Maersk Drilling’s business, including achieving targeted business benefits and synergies, as well as the market value of the Topco Shares and Topco’s access to capital and other sources of funding on acceptable terms.

Failure to acquire more than 90% of the Maersk Drilling Shares could also result in Topco not succeeding in removing the Maersk Drilling Shares from trading and official listing on Nasdaq Copenhagen. Nasdaq Copenhagen may refuse to delist the Maersk Drilling Shares, which would result in more onerous regulatory compliance obligations for the combined company and affect Topco’s ability to integrate the businesses and operations of Maersk Drilling and Noble. Further, refusal of the request to delist the Maersk Drilling Shares may increase the expenses of the Business Combination and the overall expenses of the combined company.

Each of Noble Parent’s and Maersk Drilling’s directors and executive officers have interests in the Business Combination that are in addition to, or different from, any interests they might have as shareholders.

The directors and executive officers of each of Noble Parent and Maersk Drilling have interests in the Business Combination that are in addition to, or different from, any interests they might have as shareholders, including the fact that Robert W. Eifler will serve as the President and Chief Executive Officer of Topco, Charles M. (Chuck) Sledge, the current Chairman of the Board of Noble Parent, will become chairman of the Topco Board, and Alan J. Hirshberg and Ann D. Pickard, each a director on the Board, will be designated to the Topco Board by Noble Parent upon the closing of the Business Combination, and similarly, that Claus V. Hemmingsen, the current Chairman of the Maersk Drilling Board, and Kristin H. Holth and Alastair Maxwell, each a director on the Maersk Drilling Board, will be designated to the Topco Board by Maersk Drilling upon the closing of the Business Combination.

Each of Noble Parent and Maersk Drilling may have liabilities that are not known to the other party or to Topco.

Each of Noble Parent and Maersk Drilling may have liabilities that the other party failed, or was unable, to discover in the course of performing its respective due diligence investigations. Noble Parent or Maersk Drilling may learn additional information about the other party that materially adversely affects it, such as unknown or contingent liabilities and liabilities related to compliance with applicable laws. As a result of these factors, Noble, Maersk Drilling or Topco may incur additional costs and expenses and may be forced to later write-down or write-off assets, restructure operations, or incur impairment or other charges that could result in Noble, Maersk Drilling or Topco reporting losses. Even if Noble Parent’s and Maersk Drilling’s due diligence has identified certain risks, unexpected risks may arise and previously known risks may materialize in a manner not consistent with its preliminary risk analysis. If any of these risks materialize, this could have a material adverse effect on Noble’s, Maersk Drilling’s or Topco’s financial condition and results of operations and could contribute to negative market perceptions about Noble’s, Maersk Drilling’s or Topco’s securities. Additionally, Noble Parent and Maersk Drilling do not have any indemnification rights against the other party under the Business Combination Agreement. Accordingly, securityholders of Noble Parent or Maersk Drilling could suffer a reduction in the value of their securities. Such securityholders are unlikely to have a remedy for such reduction in value unless they are able to successfully claim that the reduction was due to the breach by its directors or officers of a duty of care or other fiduciary duty owed to them, or if they are able to successfully bring a private claim under securities laws that the registration statement or proxy statement/prospectus and the exchange offer prospectus relating to the Business Combination contained an actionable material misstatement or material omission.

 

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Noble Parent shareholders and Maersk Drilling shareholders are not entitled to appraisal or dissent rights in connection with the Business Combination or the Offer.

Appraisal or dissent rights are statutory rights that enable shareholders to dissent from certain extraordinary transactions, such as certain mergers, and to demand that the corporation pay the fair value for their Ordinary Shares or Maersk Drilling Shares, as applicable, as determined by a court in a judicial proceeding instead of receiving the consideration offered to shareholders in connection with the applicable transaction. Under Cayman law, holders of Ordinary Shares will not have rights to an appraisal of the fair value of their Ordinary Shares in connection with the Business Combination, and under Danish law, holders of Maersk Drilling Shares will not have rights to an appraisal of the fair value of their Maersk Drilling Shares in connection with the Offer.

Failure to consummate the Business Combination could negatively impact the share price of Noble Parent and/or Maersk Drilling and the future business and financial results of Noble and/or Maersk Drilling.

If the Business Combination is not completed, the ongoing businesses of Noble or Maersk Drilling, respectively, may be adversely affected and, without realizing any of the benefits of having consummated the Business Combination, each of Noble and Maersk Drilling will be subject to a number of risks, including (but not limited to) the following:

 

  

each of Noble and Maersk Drilling may experience negative reactions from the financial markets, current equity and debt holders, bank relationships and other stakeholders, including negative impacts on the price of the Ordinary Shares and/or Maersk Drilling Shares;

 

  

each of Noble and Maersk Drilling may experience negative reactions from their respective customers, regulators and employees;

 

  

the consideration, negotiation and implementation of the Business Combination (including integration planning) will have required substantial commitments of time and resources by Noble Parent and Maersk Drilling management, which could otherwise have been devoted to other opportunities beneficial to Noble or Maersk Drilling, respectively;

 

  

each of Noble and Maersk Drilling could be subject to litigation related to any failure to complete the Business Combination or related to any enforcement proceeding commenced against Noble or Maersk Drilling to perform their respective obligations under the Business Combination Agreement;

 

  

each of Noble and Maersk Drilling will be required to pay certain costs and expenses relating to the Business Combination, whether or not the Business Combination is completed;

 

  

the fact that Maersk Drilling is restricted from refinancing its outstanding indebtedness, including certain indebtedness that will become current in the fourth quarter of 2022 and is due to mature in the fourth quarter of 2023, prior to the completion of the Business Combination and the risk that, in the event that the Business Combination Agreement is not completed, Maersk Drilling may be unable to negotiate the refinancing of such indebtedness on the same or more favorable terms, or to find acceptable alternative financing; and

 

  

the Business Combination Agreement places certain restrictions on the conduct of the respective businesses of each of Noble and Maersk Drilling prior to completion of the Business Combination that may prevent each party from taking certain specified actions or otherwise pursuing business opportunities during the pendency of the Business Combination that such party would have taken or pursued if these restrictions were not in place.

If the Business Combination Agreement is terminated by Maersk Drilling because a final merger control decision by a governmental entity is issued that either prohibits one or more of the transactions contemplated by the Business Combination Agreement, or prevents the consummation of such transactions without the carrying out of certain actions, then Noble Parent will be required to pay Maersk Drilling a termination fee of $50 million. Further, if the Business Combination Agreement is terminated under certain other specified circumstances, Noble Parent or Maersk Drilling may be required to pay the other party a termination fee equal to $15 million.

 

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There can be no assurance that the risks described above will not materialize. If any of those risks materialize, they may materially and adversely affect Noble’s and/or Maersk Drilling’s business, financial condition, financial results, ratings and share prices.

Noble Parent shareholders and Maersk Drilling shareholders will have a reduced ownership and voting interest after the Business Combination and may exercise less influence over management in Topco than they currently have in Noble Parent and Maersk Drilling, respectively.

Upon the completion of the Business Combination, Noble Parent shareholders and Maersk Drilling shareholders will hold a percentage ownership of Topco that is smaller than such shareholder’s current percentage ownership of Noble Parent or Maersk Drilling, respectively. Upon completion of the Business Combination, and assuming that all of the issued Maersk Drilling Shares are exchanged in the Offer, former shareholders of Noble Parent as a group and former shareholders of Maersk Drilling as a group will each receive shares in the Business Combination constituting approximately 50% of the outstanding Topco Shares immediately after the consummation of the Business Combination. Because of this, current shareholders may have less influence on the management and policies of Topco than they currently have on the management and policies of Noble Parent or Maersk Drilling, respectively.

Future sales or the availability for sale of substantial amounts of the Topco Shares, or the perception that these sales may occur, including following the Business Combination, could adversely affect the trading price of the Topco Shares and could impair the combined company’s ability to raise capital through future sales of equity securities.

Following the Business Combination, a relatively small number of shareholders will hold a large portion of the shares of the combined company and Topco will enter into the Maersk Drilling Merger RRA upon the closing of the Business Combination to facilitate future sales of such shares.

Sales of a substantial number of the Topco Shares in the public markets, including sales of large blocks of Topco Shares by the parties entering into the Maersk Drilling Merger RRA, or even the perception that these sales might occur (such as upon the filing of registration statements in connection with such sales), could impair the combined company’s ability to raise capital for its operations through a future sale of, or pay for acquisitions using, Topco’s equity securities.

Topco Shares or other securities may be issued from time to time as consideration for future acquisitions and investments. If any such acquisition or investment is significant, the number of Topco Shares, or the number or aggregate principal amount, as the case may be, of other securities that Topco may issue may in turn be substantial. Registration rights may also be granted covering those Topco Shares or other securities in connection with any such acquisitions and investments.

Topco cannot predict the effect that future sales of Topco Shares will have on the price at which the Topco Shares trades or the size of future issuances of Topco Shares or the effect, if any, that future issuances will have on the market price of the Topco Shares. Sales of substantial amounts of the Topco Shares, or the perception that such sales could occur, may adversely affect the trading price of the Topco Shares.

Risks Related to Topco and its Business

Topco will incur direct and indirect costs as a result of the Business Combination.

Topco will incur costs and expenses in connection with and as a result of the Business Combination. These costs and expenses include professional fees incurred in connection with Topco’s compliance with UK corporate and tax laws and financial reporting requirements, costs and other administrative expenses related to the expanded global scope of Topco’s operations, as well as any additional costs Topco may incur going forward as a result of its new corporate structure. The combined company cannot assure you that it will realize all of the

 

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anticipated benefits of the Business Combination, including the synergies related to public company expenses, back-office support functions, sales and distribution, and integration of senior management and administration. Topco can also not assure you that its estimates of pre-tax cost savings are accurate. While direct and indirect costs incurred as a result of the Business Combination are not expected to have such an effect, the costs could exceed the costs historically borne by Noble and Maersk Drilling.

Failure to recruit and retain key personnel could hurt Topco’s operations.

Topco will depend on the continuing efforts of key members of management, as well as other highly skilled personnel, to operate and provide technical services and support for Topco’s business worldwide. Historically, competition for the personnel required for drilling operations has intensified as the number of rigs activated, added to worldwide fleets or under construction has increased, leading to shortages of qualified personnel in the industry and creating upward pressure on wages and higher turnover. In addition, the oil and gas industry generally has increasingly struggled to attract talented and qualified personnel. Topco may experience a reduction in the experience level of personnel as a result of any increased turnover, which could lead to higher downtime and more operating incidents, which in turn could decrease revenues and increase costs. If increased competition for qualified personnel were to intensify in the future Topco may experience increases in costs or limits on operations.

Topco may not be able to retain customers or suppliers, and customers or suppliers may seek to modify contractual obligations with Topco, either of which could have an adverse effect on Topco’s business and operations. Third parties may terminate or alter existing contracts or relationships with Topco as a result of the Business Combination.

As a result of the Business Combination, Topco may experience impacts on relationships with customers and suppliers that may harm the combined company’s business and results of operations, including, in the case of customers of Maersk Drilling, as a result of a loss of the Maersk Drilling name and branding or the departure of certain Maersk Drilling employees. Certain customers or suppliers may seek to terminate or modify contractual obligations following the Business Combination whether or not contractual rights are triggered as a result of the Business Combination. There can be no guarantee that customers and suppliers will remain with or continue to have a relationship with Topco or do so on the same or similar contractual terms following the Business Combination. If any customers or suppliers seek to terminate or modify contractual obligations or discontinue their relationships with Topco, then Topco’s business and results of operations may be harmed. If Topco’s suppliers were to seek to terminate or modify an arrangement with Topco, then Topco may be unable to procure necessary supplies or services from other suppliers in a timely and efficient manner and on acceptable terms, or at all.

Noble and Maersk Drilling also have contracts with vendors, landlords, licensors and other business partners which may require Noble and Maersk Drilling, as applicable, to obtain consent from these other parties in connection with the Business Combination. If these consents cannot be obtained, Topco may suffer a loss of potential future revenue, incur costs and lose rights that may be material to the business of Topco. In addition, third parties with whom Noble and Maersk Drilling currently have relationships may terminate or otherwise reduce the scope of their relationship with either party in anticipation of the Business Combination. Any such disruptions could limit Topco’s ability to achieve the anticipated benefits of the Business Combination. The adverse effect of any such disruptions could also be exacerbated by a delay in the completion of the Business Combination or by a termination of the Business Combination Agreement.

Topco’s actual financial position and results of operations may differ materially from the unaudited pro forma financial information included elsewhere in this prospectus.

The unaudited pro forma condensed combined financial information contained elsewhere in this prospectus is presented for illustrative purposes only, incorporates certain assessments and judgments made solely by Noble

 

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and may not be an indication of what Topco’s financial position or results of operations would have been had the Business Combination been completed on the dates indicated. The unaudited pro forma condensed combined financial information has been derived from the audited historical financial statements of Noble and Maersk Drilling and certain adjustments, including the conversion of certain of Maersk Drilling’s financial statements to U.S. GAAP, and Noble has made certain assumptions regarding the combined company after giving effect to the Business Combination. The assets and liabilities of Maersk Drilling have been measured at fair value by Noble based on various preliminary estimates using assumptions that management believes are reasonable utilizing information currently available. The process for estimating the fair value of acquired assets and assumed liabilities has required Noble to use judgment in determining the appropriate assumptions and estimates. Noble’s preliminary determination is subject to further assessment and adjustments pending additional information sharing between the parties, more detailed third-party appraisals, and other potential adjustments. These estimates and assumptions may be revised as additional information becomes available and as additional analyses are performed. Differences between preliminary estimates in the pro forma financial information and the final acquisition accounting will occur and could have a material impact on the pro forma financial information and the combined company’s financial position and future results of operations.

Noble and Maersk Drilling are not yet combined businesses, and there are limitations on the information available to prepare the pro forma financial information. The assumptions made by Noble in preparing the pro forma financial information may not prove to be accurate, and other factors may affect Topco’s financial condition or results of operations following the completion of the Business Combination. Acquisition accounting rules require evaluation of certain assumptions, estimates or determination of financial statement classifications which are completed during the measurement period as defined in current accounting standards. Accounting policies of Topco and acquisition accounting rules may materially vary from those of Maersk Drilling. Any changes in assumptions, estimates, or financial statement classifications may be material and have a material adverse effect on the assets, liabilities or future earnings of Topco. Any potential decline in Topco’s financial condition or results of operations may cause significant variations in the share price of Topco. See “Unaudited Pro Forma Condensed Combined Financial Information.”

Changes to U.S., UK, Cayman and other non-U.S. tax laws could adversely affect Topco.

The U.S. Congress, the European Commission, the OECD and other supranational institutions and/or government agencies in jurisdictions where Topco and its affiliates do business have had an extended focus on issues related to the taxation of multinational corporations and several tax reforms have been proposed, which, if adopted, could increase the tax liabilities and adversely affect the results of operations of Topco and its affiliates (including Noble and its affiliates after the Business Combination). One example is in the area of “base erosion and profit shifting,” including situations where payments are made between affiliates from a jurisdiction with high tax rates to a jurisdiction with lower tax rates. The OECD has advanced reforms focused on “base erosion and profit shifting” and implementing a global minimum tax rate of at least 15% for large multinational corporations on a jurisdiction-by-jurisdiction basis, known as the “two pillar plan.” On October 8, 2021, the OECD announced an accord endorsed by 136 nations outlining the two pillar plan. While the implementation of the accord is uncertain, if legislation is enacted to implement the accord in the United States, the United Kingdom, Denmark and other countries in which Topco and its affiliates do business could change on a prospective or retroactive basis, and any such changes could adversely affect Topco and its affiliates (including Noble and its affiliates after the Business Combination). These changes could also affect the profitability prospects of Topco and the industry at large to the extent such cost increases cannot be reflected in day rates.

The tax rate that will apply to Topco is uncertain and may vary from expectations.

There can be no assurance that the Business Combination will improve Topco’s ability to maintain any particular worldwide effective corporate tax rate. Noble cannot give any assurance as to what Topco’s effective tax rate will be after the completion of the Business Combination because of, among other things, uncertainty regarding the tax policies of the jurisdictions in which Topco and its affiliates will operate. Topco’s actual

 

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effective tax rate may vary from Noble’s expectations, and such variance may be material. Additionally, tax laws or their implementation and applicable tax authority practices in any particular jurisdiction could change in the future, possibly on a retroactive basis, and any such change could have a material adverse impact on Topco and its affiliates. In particular, it should be noted that the main rate of corporation tax in the United Kingdom is set to increase from 19% to 25% with effect from April 1, 2023.

Transfers of Topco Shares outside the Depository Trust Company (“DTC”) may be subject to stamp duty or stamp duty reserve tax in the UK, which would increase the cost of dealing in the Topco Shares.

On completion of the Business Combination it is anticipated that the Topco Shares will be issued to Cede & Co. (as nominee for DTC) and corresponding book-entry interests credited in the facilities of DTC. On the basis of current UK tax law and published HM Revenue and Customs (“HMRC”) practice, no charges to UK stamp duty or stamp duty reserve tax (“SDRT”) are expected to arise on the issue of the Topco Shares into DTC’s facilities or on transfers of book-entry interests in Topco Shares within DTC’s facilities. A non-statutory, pre-transaction clearance is being sought from HMRC to confirm, among other things, that no stamp duty or SDRT will be chargeable in respect of the issue of Topco Shares into the facilities of DTC.

A transfer of title in the Topco Shares from within the DTC system to a purchaser out of DTC, and any transfers of Topco Shares held in certificated form, will generally attract a charge to stamp duty or SDRT at a rate of 0.5% of any consideration. Any such duty must be paid (and the relevant transfer document, if any, stamped by HMRC) before the transfer can be registered in the company books of Topco. Any transfers of Topco Shares to an issuer of depository receipts or into a clearance system (including DTC) will generally be subject to stamp duty or SDRT at a rate of 1.5% of the consideration given or received or, in certain cases, the value of the Topco Shares transferred. The purchaser or transferee of the Topco Shares generally will be responsible for paying any stamp duty or SDRT payable.

In connection with the completion of the Business Combination, Topco expects to put in place arrangements to require that Topco Shares held in certificated form, or otherwise outside the DTC system, cannot be transferred into the DTC system until the transferor of the Topco Shares has first delivered the Topco Shares to a depositary specified by Topco so that any stamp duty (and/or SDRT) may be collected in connection with the initial delivery to the depositary. Any such Topco Shares will be evidenced by a receipt issued by the depositary. Before the transfer can be registered in the Topco company books, the transferor will also be required to put funds in the depositary to settle any resultant liability to stamp duty (and/or SDRT), which will generally be charged at a rate of 1.5% of the value of the shares.

If the Topco Shares and/or Topco Warrants are not eligible for deposit and clearing within the facilities of DTC, then transactions in the Topco Shares and/or Topco Warrants may be disrupted. Topco is expected to be required to indemnify DTC for any stamp duty and SDRT that may be assessed upon it as a result of its service as a depository and clearing agency for the Topco Shares and Topco Warrants.

The facilities of DTC are a widely-used mechanism that allow for rapid electronic transfers of securities between the participants in the DTC system, which include many large banks and brokerage firms. Topco expects that the Topco Shares and Topco Warrants will be eligible for deposit and clearing within the DTC system. Topco expects to enter into arrangements with DTC whereby Topco will agree to indemnify DTC for any stamp duty and SDRT that may be assessed upon it as a result of its service as a depository and clearing agency for the Topco Shares and Topco Warrants. Topco expects these actions, among others, should result in DTC agreeing to accept the Topco Shares and Topco Warrants for deposit and clearing within its facilities.

DTC is not obligated to accept the Topco Shares or Topco Warrants for deposit and clearing within its facilities in connection with this transaction and, even if DTC does initially accept the Topco Shares and Topco Warrants, it will generally have discretion to cease to act as a depository and clearing agency for the Topco Shares and Topco Warrants, including to the extent that any changes in UK law changes the stamp duty or SDRT

 

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position in relation to the Topco Shares or Topco Warrants. While Topco would pursue alternative arrangements to preserve the listing and maintain trading, any such disruption could have a material adverse effect on the market price of the Topco Shares.

A non-statutory, pre-transaction clearance is being sought from HMRC to confirm, among other things, that no stamp duty or SDRT will be chargeable in respect of the issue of Topco Shares or Topco Warrants into the facilities of DTC or in respect of any subsequent transfers of book-entry interests in Topco Shares and/or Topco Warrants within the DTC system. Whilst Topco expects to receive HMRC clearance on the relevant matters where clearance is being sought, in the event that there is any such liability in respect of stamp duty or SDRT for Topco (whether directly or indirectly as a result of the indemnity being provided to DTC), such liability will represent an additional cost for Topco and may consequently have an adverse effect on returns to shareholders.

Maersk Drilling currently is not subject to the internal controls and other compliance obligations of the U.S. securities laws, and Topco may not be able to timely and effectively implement controls and procedures over Maersk Drilling operations as required under the U.S. securities laws.

Maersk Drilling currently is not subject to the information and reporting requirements of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and other U.S. federal securities laws, including the compliance obligations relating to, among other things, the maintenance of a system of internal controls as contemplated by the Exchange Act. Subsequent to the completion of the Business Combination, Topco will need to timely and effectively implement the internal controls necessary to satisfy those requirements, which require annual management assessments of the effectiveness of internal control over financial reporting and a report by an independent registered public accounting firm addressing these assessments. Topco intends to take appropriate measures to establish or implement an internal control environment at Maersk Drilling aimed at successfully fulfilling these requirements. However, it is possible that Topco may experience delays in implementing or be unable to implement the required internal financial reporting controls and procedures, which could result in increased costs, enforcement actions, the assessment of penalties and civil suits, failure to meet reporting obligations and other material and adverse events that could have a negative effect on the market price for Topco Shares.

Topco intends to seek approval from the Court for a capital reduction to create distributable reserves in order to pay dividends.

As further described above, under English law, dividends may only be paid and share repurchases and redemptions must generally be funded only out of “distributable reserves.” In the absence of such distributable reserves, Topco may seek to create distributable reserves that involves a reduction in Topco’s share premium account, which requires the approval of the Court and, in connection with seeking such Court approval, the approval of Topco shareholders would be sought. Topco is not aware of any reason why the Court would not approve the creation of distributable reserves in this manner; however, the issuance of the required order is a matter for the discretion of the Court. There will also be no guarantee that the approvals by Topco shareholders will be obtained. In the event that distributable reserves of Topco are not created, no distributions by way of dividends, share repurchases or otherwise will be permitted under English law until such time as the group has created sufficient distributable reserves from its business activities.

The rights of holders of Topco Shares to be received by Noble Parent shareholders in connection with the Business Combination will be different from the rights of holders of Ordinary Shares due to the difference between Cayman and English law.

Upon completion of the Business Combination, Noble Parent shareholders will become Topco shareholders and their rights as shareholders will be governed by Topco’s Articles of Association and English law and regulation. The rights associated with the Ordinary Shares are different than the rights associated with Topco Shares. Differences between the rights of Noble Parent shareholders before the Business Combination and the

 

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rights of Topco shareholders following the Business Combination include differences with respect to, among other things, distributions, dividends, share repurchases and redemptions, shareholder pre-emption rights, the duties of directors, the process for the election and removal of directors, conflicts of interests of directors, the indemnification of directors and officers, limitations on director liability, the convening of annual meetings of shareholders and special shareholder meetings, the advance notice provisions for meetings, voting rights and resolution approval thresholds, the quorum for shareholder meetings, the adjournment of shareholder meetings, shareholder proposals, shareholder suits, reporting requirements, inspection of books and records, disclosure of interests in shares, rights of dissenting shareholders, anti-takeover measures, provisions relating to the ability to amend the articles of association, forum and venue, and enforcement of civil liabilities against foreign persons. While Noble Parent does not believe that these differences will have a materially adverse effect on Noble Parent shareholders who become Topco shareholders, situations may arise where the rights associated with Ordinary Shares would have provided benefits to Noble Parent shareholders that will not be available with respect to their holdings of Topco Shares.

As a result of different shareholder voting requirements in the United Kingdom relative to the Cayman Islands, Topco will have less flexibility with respect to certain aspects of capital management than Noble Parent currently has.

Under English law, the directors of a public limited company may only, other than in certain limited circumstances, issue shares with prior shareholder authorization and pre-emption rights apply by default to any such share issues. Shareholder authorizations to allot shares and disapply pre-emption rights may be granted for a period of five years and so it is intended, prior to the Business Combination, for Topco to pass (i) an ordinary resolution to allot ordinary shares up to an aggregate nominal value; and (ii) a special resolution to disapply pre-emption rights in respect of the allotment of shares up to an aggregate nominal value, in each case for a period of five years from the date of the resolution. Under the Articles of Noble Parent and Cayman law, the board of directors may issue shares (within the limits authorized in the Articles) and pre-emption rights do not apply. In addition, under English law, a company is generally only authorized to repurchase its own shares when it has been authorized to do so by an ordinary resolution of the shareholders, whereas the current Articles, and Cayman law, permit share purchases in the circumstances agreed by Noble Parent and the holder of the shares. Topco is expected to pass an ordinary resolution, prior to the Business Combination, authorizing the repurchase of up to 15% per annum of the issued share capital as of the beginning of each fiscal year for a five year period (subject to an overall aggregate maximum number of shares to be set forth in the resolution).

After the completion of the Business Combination, attempted takeovers of Topco will be governed by English law, and certain applicable Danish takeover restrictions could prevent existing Topco shareholders from participating in transactions regarding Topco Shares.

Cayman laws regarding directors’ fiduciary duties give the board of directors broad latitude to defend against unwanted takeover proposals. As a UK incorporated company, Topco is subject to English law. An English public company is potentially subject to the protections afforded by the Takeover Code if, among other factors, a majority of its directors are resident within the UK, the Channel Islands or the Isle of Man. Based upon Topco’s current and intended plans for its directors, it is anticipated that the Takeover Code will not apply to Topco. However, it is possible that, in the future, circumstances could change that may cause the Takeover Code to apply to Topco.

Further, it could be more difficult for Topco to obtain shareholder approval for a merger or negotiated transaction after the closing of the Business Combination because the shareholder approval requirements for certain types of transactions differ, and in some cases are greater, under English law than under Cayman law.

Following the listing of Topco Shares in Denmark on Nasdaq Copenhagen, certain Danish takeover restrictions will likely apply to attempted takeovers of Topco. The Danish Takeover Order includes rules concerning public tender offers for the acquisition of shares admitted to trading on a regulated market (including

 

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Nasdaq Copenhagen). Pursuant to the Danish rules on mandatory tender offers, if a shareholding is transferred, directly or indirectly, in a company with one or more share classes admitted to trading on a regulated market, to an acquirer or to persons acting in concert with such acquirer, the acquirer and the persons acting in concert with such acquirer, if applicable, shall give all shareholders of the company the option to dispose of their shares on identical terms, if the acquirer, or the persons acting in concert with such acquirer, as a result of the transfer, gains control over the company as a result of the transfer. Control exists if the acquirer, or persons acting in concert with such acquirer, directly or indirectly, holds at least one-third of the voting rights in the company, unless it can be clearly proven in special cases that such ownership does not constitute control. Exemptions from the mandatory tender offer rules may only be granted under special circumstances by the DFSA.

The application of the Danish mandatory tender offer rule could inter alia have a deterrent effect on potential acquirers of Topco Shares if such acquisition would result in a transfer of control over Topco, if this would trigger an obligation to make a mandatory tender offer.

English law requires that companies meet certain additional financial requirements before they can declare dividends or repurchase shares and such requirements may affect Topco’s ability to declare dividends or repurchase shares following the Business Combination.

Under English law, a company generally can declare dividends, make distributions or repurchase shares (other than out of the proceeds of a new issuance of shares made for that purpose) only out of distributable reserves. Distributable reserves are a company’s accumulated, realized profits, to the extent not previously utilized for distributions or capitalization, less its accumulated, realized losses, to the extent not previously written off in a reduction or reorganization of capital.

Prior to the effective time of the Business Combination, Noble Parent, as the current sole shareholder of Topco, will pass resolutions to approve a proposed reduction of capital after completion of the Business Combination (which for this purpose means upon completion of the Offer), to: (i) cancel the shares which will be held by Noble Parent prior to the Business Combination and to reduce its share premium account; (ii) cancel any Capitalization shares (as defined in the Form S-4 Registration Statement) which are issued by Topco after completion of the Business Combination; and (iii) reduce the share premium created by the issue of the Topco Shares in connection with the Maersk Drilling Merger and, if applicable, the Offer, in each case to create distributable reserves from which Topco may declare and pay dividends in the future. As soon as practicable following completion of the Business Combination (which for this purpose means upon completion of the Offer) Topco will seek the approval of the High Court of Justice in England and Wales (the “Court”) to such cancellation and reduction through a customary process, which is required for the creation of distributable reserves to be effective. The approval of the Court is expected to be received approximately four weeks after the completion of the Business Combination. Prior to the receipt of the approval, Topco will be unable to declare dividends, make distributions or repurchase any of its own shares. If the approval of the Court is not received, it is expected that Topco will be subject to such limitation on its ability to declare dividends, make distributions or repurchase shares for the foreseeable future.

The market price of Topco Shares may be volatile, and the value of a holder’s investment could materially decline.

Investors who hold Topco Shares may not be able to sell their shares at or above the price at which they purchased the Ordinary Shares. The prices of Ordinary Shares and Maersk Drilling Shares have fluctuated materially from time to time, and Topco cannot predict the price of the Topco Shares. Broad market and industry factors may materially harm the market price of Topco Shares, regardless of Topco’s operating performance. In addition, the price of Topco Shares may be dependent upon the projections, valuations and recommendations of the analysts who cover the Topco business, and if its results or financial guidance do not meet the analysts’ projections and expectations, Topco’s share price could decline as a result of analysts lowering their projections, valuations and recommendations or otherwise.

 

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Following the completion of the Business Combination, Topco may be subject to UK corporation tax liabilities in the future under the UK derivative contracts regime in respect of the Topco Warrants.

Topco is expected to be subject to UK corporation tax pursuant to the UK derivative contracts regime in respect of the Topco Warrants, subject to any change in circumstances of the Topco Warrants. Under this regime, the profits chargeable to corporation tax in respect of the Topco Warrants, and the losses allowable by way of relief, would be calculated by reference to credits and debits which, as a general rule, follow the amounts that are recognized for accounting purposes in determining profit or loss in accordance with generally accepted accounting practice. Topco may therefore be subject to future charges to UK corporation tax depending on the movements in the fair value of the Topco Warrants from time to time, in line with the accounting treatment of the Topco Warrants.

Danish tax considerations could adversely affect Topco.

The Danish Tax Authorities may challenge whether Topco is entitled to a Danish withholding tax exemption on dividends from Maersk Drilling. Topco is a tax resident of the UK and will own a majority of the Maersk Drilling Shares following the closing of the Offer. Thus, Topco is expected to be entitled to the benefits under the double tax treaty between Denmark and the UK in regard to dividend distributions from Maersk Drilling, which would mean that dividends could be distributed from Maersk Drilling to Topco without Danish withholding tax.

In order to qualify for a withholding tax reduction with under the double tax treaty between Denmark and the UK, the recipient of dividends must be a treaty covered person and the beneficial owner of such dividends.

The view of the Danish Tax Authorities is that the beneficial ownership assessment is a transaction-based approach whereby the decisive factors include the level of activity and economic risk undertaken by the recipient and the ability to demonstrate real use and enjoyment rights in each case of any dividends received. Furthermore, Danish anti-avoidance provisions provide a legislative basis for the Danish tax authorities to deny a recipient of dividends, even though such recipient would otherwise qualify as the beneficial owner, the benefits of a double tax treaty in situations where the main purpose or one of the main purposes of an arrangement or transaction is to gain a tax advantage that would contradict the objective or purpose of a double tax treaty and the arrangement or transaction is considered artificial. An arrangement or transaction will be considered artificial if it has no valid commercial reasons. In practice, the Danish Tax Authorities consider whether a company is merely interposed for tax reasons and acts solely as a conduit.

Topco is a tax resident of the UK and is expected to conduct certain management functions relating to the holding of shares, financing, cash management, incentive compensation and other relevant holding company functions. In addition, Topco may in the future decide to invest in other assets and conduct other activities and, in such case, Topco management is expected to decide whether holding these assets or conducing these activities should be made directly at Topco, at Maersk Drilling or at any other subsidiary. Topco management believes that the characteristics of Topco as (i) a publicly listed company with numerous shareholders, (ii) management’s right to dispose of dividends received as it chooses and (iii) the economic risks born by Topco demonstrate that Topco is the beneficial owner of dividends from Maersk Drilling and not a conduit for distribution of such dividends to the shareholders and, accordingly, that the anti-avoidance rules are not expected to apply.

Topco will be a listed company on the NYSE and Nasdaq Copenhagen. Danish case law has shown that the Danish tax authorities and the Danish administrative courts have determined that there is a presumption of beneficial ownership at the level of a listed company, provided that (i) such company’s shares are listed on recognized markets, (ii) such company’s shares are held by a significant number of shareholders, (iii) the shares in the listed company are actually traded on the market, and (iv) there are viable commercial arguments supporting the establishment of the company.

The tests for beneficial ownership and application of Danish anti-avoidance rules are subjective and the ownership of Maersk Drilling will as such entail an inherent risk of a challenge from the Danish tax authorities.

 

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The current Danish withholding tax rate is 27% of the distribution. In the event that the Danish tax authorities take the view that the Topco is not the beneficial owner of dividends distributed, and therefore that Danish withholding tax should have been paid, any such payment would increase Topco’s tax burden, and hence its cash flows and financial position, and may prejudice Maersk Drilling’s ability to pay dividends itself. In the event that the Danish tax authorities should regard an EU “blacklisted” entity as the beneficial owner, a proportionate part of any distributions could be subject to 44% Danish withholding taxation.

Risks Related to the Maersk Drilling Group’s Business and Operations

The Maersk Drilling Group’s business involves numerous operating hazards. If a significant accident or other event occurs, and is not fully covered by the Maersk Drilling Group’s insurance policies or any enforceable or recoverable indemnity, it could have a material adverse effect on the Maersk Drilling Group’s business, financial condition, and results of operations.

The Maersk Drilling Group’s operations are subject to hazards inherent in drilling for oil and natural gas, such as blowouts, reservoir damage, loss of production, loss of well control, punch through (for example, when one leg of the drilling rig breaks through the sea floor crust, destabilizing the rest of the rig), lost or stuck drill strings, equipment defects, craterings, fires, explosions and pollution. Offshore drilling and the provision of well services require the use of heavy equipment and exposure to hazardous conditions which carry inherent health and safety risks. The Maersk Drilling Group’s operations are also subject to hazards inherent in marine operations, such as capsizing, grounding, navigation errors, collision, oil and hazardous substance spills, extensive uncontrolled fires, damage from severe weather conditions, and marine life infestations. Such hazards could expose the Maersk Drilling Group to the risk of suspension or termination of operations, regulatory penalties or sanctions, property, environmental and other damage claims by customers or other third parties, which may in turn have a material adverse effect on the Maersk Drilling Group’s business, financial condition, results of operations, and reputation.

The Maersk Drilling Group’s insurance policies may not adequately cover losses, and the Maersk Drilling Group does not have insurance coverage or rights to an indemnity for all risks. In addition, the Maersk Drilling Group’s insurance coverage will not provide sufficient funds in all situations to protect the Maersk Drilling Group from all liabilities that could result from its operations, including because the amount of the Maersk Drilling Group’s insurance cover may be less than the related impact on enterprise value after a loss, and the Maersk Drilling Group’s coverage also includes policy limits. As a result, the Maersk Drilling Group retains the risk through paying directly for any losses in excess of these limits. The Maersk Drilling Group may also decide to retain substantially more risk through reduction of its insurance policies, and thus paying directly for potential losses in the future.

Although it is the Maersk Drilling Group’s policy to obtain contractual indemnities for as much as possible, it may not always be able to negotiate provisions to protect against all risks. Further, even when the Maersk Drilling Group receives indemnities from customers these may not be easily enforced and will be of limited value if the relevant customers do not have adequate resources to indemnify the Maersk Drilling Group.

No assurance can be made that the Maersk Drilling Group has, or the combined company will be able to maintain in the future, adequate insurance or indemnity against certain risks, and there is no assurance that such insurance or indemnification agreements will adequately protect the Maersk Drilling Group and the combined company against liability from all of the consequences of the hazards and risks described above. The occurrence of a significant accident or other adverse event which is not fully covered by the Maersk Drilling Group’s insurance or any enforceable or recoverable indemnity from a customer could result in substantial losses for the Maersk Drilling Group and could materially adversely affect the Maersk Drilling Group’s results of operations, cash flow and financial condition. The occurrence of a significant accident or other adverse event could also cause the cost of insurance to increase significantly and have a material adverse effect on the Maersk Drilling Group’s earnings, cash flow and financial condition.

 

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The Maersk Drilling Group relies on third-party subcontractors to complete some parts of its projects and its operations may be adversely affected by the sub-standard performance or non-performance of those third-party subcontractors.

The Maersk Drilling Group engages third-party subcontractors to perform some parts of its projects and in respect of new business models a majority of the services under a project may be subcontracted to third-party subcontractors. Subcontractors are used to perform certain services and to provide certain input in areas where the Maersk Drilling Group does not have requisite expertise. The subcontracting of work exposes the Maersk Drilling Group to risks associated with planning interface non-performance, delayed performance or substantial performance by its subcontractors. Any inability to hire qualified subcontractors could hinder successful completion of a project. Further, the Maersk Drilling Group’s employees may not have the requisite skills to be able to monitor or control the performance of these subcontractors. The Maersk Drilling Group may suffer losses on contracts if the amounts it is required to pay for subcontractor services exceed its original estimates. Remedial or mitigating actions, such as requiring contractual obligations on subcontractors that are similar to those the Maersk Drilling Group has with its customers, and requesting parent guarantees to cover non-performance by subcontractors, may not be available or sufficient to mitigate the risks associated with subcontractors. For example, the Maersk Drilling Group has experienced issues with the performance of some of its key suppliers in the past, in particular in relation to delays in the delivery and maintenance of its subsea well-control equipment. Such issues could have a negative effect on Maersk Drilling Group’s business, financial condition, and results of operations.

The Maersk Drilling Group relies on third-party suppliers to provide parts, crew and equipment, and its operations may be adversely affected by supplier production disruptions, quality and sourcing issues, price increases or consolidation of suppliers as well as equipment breakdowns.

The Maersk Drilling Group’s reliance on third-party suppliers, manufacturers and service providers to secure equipment and crew used in the Maersk Drilling Group’s drilling operations exposes it to volatility in the quality, price and availability of such items. Certain specialized parts, crew and equipment used by the Maersk Drilling Group in its operations may be available only from a single or a small number of suppliers. A disruption in the deliveries from such third-party suppliers, capacity constraints, production disruptions, price increases, defects or quality-control issues, recalls or other decrease in the availability or servicing of parts and equipment could adversely affect the Maersk Drilling Group’s ability to meet its commitments towards its customers, adversely impact operations and revenues by resulting in uncompensated downtime, reduced day rates under the relevant drilling contracts, cancellation or termination of contracts, or increased operating costs. In addition, consolidation of suppliers may limit the Maersk Drilling Group’s ability to obtain supplies and services when needed at an acceptable cost or at all.

Equipment deficiencies or breakdowns, whether due to faulty parts, quality control issues or inadequate installation, may result in increased maintenance costs and could adversely affect the Maersk Drilling Group’s operations and revenues by resulting in financial downtime. For example, the Maersk Drilling Group has a multi-year maintenance project to overhaul jacking gears on certain jack-up rigs involving significant costs. While the Maersk Drilling Group is pursuing recovery options in respect of certain of the project costs, there can be no assurance as to the extent to which Maersk Drilling will recover those costs. If mitigation measures put in place by the Maersk Drilling Group are not effective, it could lead to significant financial downtime, adversely affect the Maersk Drilling Group’s ability to meet its commitments towards its customers, potential cancellation or termination of drilling contracts, suspension or termination of operations, regulatory penalties or sanctions, property, environmental and other damage claims by customers or other third parties, which may in turn have a material adverse effect on the Maersk Drilling Group’s business, financial condition, results of operations, and reputation.

 

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The Maersk Drilling Group faces risks associated with creating and executing new business models, particularly when such business models involve a risk profile, remuneration, or financial scheme that is different from a conventional drilling contract.

As an important part of its “Smarter Drilling for Better Value” strategy, the Maersk Drilling Group is exploring, and has in the past, implemented various degrees of innovative business models with customers and partners in order to expand its share of the value chain, while simultaneously creating better outcomes for its customers and long-term resilience of its business through increased customer collaboration, differentiation and utilization. Although such business model innovation is intended to offer further earnings opportunities for the Maersk Drilling Group, there are risks associated with creating and executing new business models, particularly when such business models involve a risk profile, remuneration, or financial scheme that is different from the Maersk Drilling Group’s conventional drilling contracts.

The Maersk Drilling Group is currently implementing two broad categories of business models including:

 

 (i)

integrating new services into joint offerings to customers as an integrated service provider with the objective of removing waste in the well-delivery supply chain through better orchestration and alignment of incentives; and

 

 (ii)

offering new financial models focused on risk and reward sharing through, among other things, deferred payments, fixed pricing or co-investments, enabling operators to develop fields that would otherwise be economically challenged. However, forecasting the success of any new business model is inherently uncertain and depends on a number of factors both within and outside of the Maersk Drilling Group’s control. The Maersk Drilling Group’s actual revenue and profit generated from such business models may be significantly greater or less than forecasts. In addition, the efficiencies anticipated from new business models may fail to be realized, the costs may be higher and the counterparty risk greater than expected. In addition, as the Maersk Drilling Group creates and executes more new business models and expands into other parts of the value chain, the Maersk Drilling Group’s risk profile may continue to shift. See also “The Maersk Drilling Group relies on third-party subcontractors to complete some parts of its projects and its operations may be adversely affected by the sub-standard performance or non-performance of those third-party subcontractors”, “—Legal and Regulatory Risks Related to the Maersk Drilling Group—The Maersk Drilling Group’s international activities increase the compliance risk associated with applicable anti-corruption laws” and “—Legal and Regulatory Risks Related to the Maersk Drilling Group—The Maersk Drilling Group’s international activities increase the compliance risks associated with economic and trade sanctions imposed by the United States, the European Union and other jurisdictions.” Entering into new business models could have an adverse impact on the Maersk Drilling Group’s business, financial condition, and results of operations.

The Maersk Drilling Group’s drilling rigs are subject to damage or destruction by severe weather, and its drilling operations may be affected by severe weather conditions.

Some of the Maersk Drilling Group’s drilling rigs are located in areas that frequently experience hurricanes and other forms of severe weather conditions. For example, rigs located in certain parts of the North Sea may be subject to strong currents and low service temperatures, and rigs operating in the US Gulf of Mexico may, from time to time, be subject to tropical storm systems with high winds and waves. These conditions can cause damage or destruction to its drilling rigs. Further, high winds and turbulent seas could cause the Maersk Drilling Group to suspend operations on drilling rigs for significant periods of time. Even if its drilling rigs are not damaged or lost due to severe weather, the Maersk Drilling Group may experience disruptions in its operations due to evacuations, reduced ability to transport personnel or necessary supplies to the drilling unit, or damage to its customers’ platforms and other related facilities. Future severe weather could result in the loss or damage to the Maersk Drilling Group’s rigs or curtailment of its operations, which could adversely affect the Maersk Drilling Group’s business, financial condition, and results of operations.

 

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The Maersk Drilling Group may experience reduced profitability or not fully realize its backlog of drilling revenue if its customers terminate, seek to renegotiate or fail to exercise an option to extend its drilling contracts, or if it fails to secure new drilling contracts.

The Maersk Drilling Group may be subject to the risk of its customers seeking to terminate or renegotiate their contracts. Customers’ financial positions, as well as restricted credit markets, may adversely affect their ability to perform their obligations under drilling contracts with the Maersk Drilling Group. As an example, the Maersk Drilling Group has experienced, as a result of events significantly adversely affecting customers’ demand for offshore drilling services (such as the COVID-19 pandemic), customers seeking to terminate or renegotiate their contracts. If the Maersk Drilling Group’s customers cancel or are unable or unwilling to renew some of their contracts, the Maersk Drilling Group will need to secure a new contract for that drilling rig and any time lag in doing so could lead to a period of non-utilization. In addition, where the Maersk Drilling Group tenders for new contracts, it is generally difficult to predict whether it will be awarded contracts on favorable terms or at all. The tenders are affected by a number of factors beyond the Maersk Drilling Group’s control, such as market conditions, competition (including the intensity of the competition in a particular market), financing arrangements and government approvals required by customers. If the Maersk Drilling Group is unable to secure new contracts on a timely basis and on substantially similar or better terms, if contracts are disputed or suspended for a period of time, or if a number of its contracts are renegotiated, such events would adversely affect the Maersk Drilling Group’s business, financial condition, and results of operations.

In addition, customers exploring for or producing oil and/or natural gas (“E&P Companies”) commonly ask for options to extend their drilling contracts to include additional work. Such options may expose the Maersk Drilling Group to risk as the customer may decide not to exercise the option and the Maersk Drilling Group may, in the meantime, have to decline other work. In order to mitigate this risk, options should be exercised with a reasonable notice, however, getting E&P Companies to agree to include adequate notice provisions is difficult to achieve in a weak market. The need for long notice periods reflects the long lead times that characterize the industry in which the Maersk Drilling Group operates. Drilling rigs are often contracted long in advance of the date on which drilling commences and without adequate notice periods for options, the Maersk Drilling Group’s ability to market the rig effectively for future contacts may be compromised. Even if the customer decides to exercise the option and provides adequate notice, the terms of the option may be less favorable than the Maersk Drilling Group may otherwise be able to secure with alternative contracts.

Most of the Maersk Drilling Group’s drilling contracts may be cancelled by the customer without a termination fee becoming payable upon the occurrence of events beyond the Maersk Drilling Group’s control such as the loss or destruction of the drilling rig, or the suspension of drilling operations for a specified period of time as a result of a breakdown of critical equipment. While most of its contracts require the customer to pay a termination fee in the event of an early cancellation without cause, early termination payments will in most cases not fully compensate the Maersk Drilling Group for the full revenue loss of the contract and could result in the drilling rig becoming idle for an extended period of time. If the Maersk Drilling Group or its customers are unable to perform under existing contracts for any reason, or if the Maersk Drilling Group replaces terminated contracts with new contracts having less favorable terms, the Maersk Drilling Group’s backlog of estimated revenue would decline, adversely affecting the Maersk Drilling Group’s business, financial condition, and results of operations.

Additionally, the Maersk Drilling Group’s customers may be entitled to pay a waiting, or standby, rate lower than the full operational day rate if a drilling rig is not available to be fully operational for the customer. In addition, if a drilling rig is taken out of service for maintenance and repair for a period of time exceeding the scheduled maintenance periods set forth in the drilling contract, the Maersk Drilling Group may not be entitled to payment of day rates until the rig is able to work. If the interruption of operations were to exceed a determined period, the Maersk Drilling Group’s customers may have the right to pay a rate that is significantly lower than the waiting rate for a period of time or may terminate the drilling contracts related to the subject rig. Prolonged payment of reduced rates or termination of any drilling contract as a result of an interruption of operations could materially adversely affect the Maersk Drilling Group’s business, financial condition, and results of operations.

 

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The announcement and pendency of the Business Combination, and uncertainty about the effects of the Business Combination, may increase the risks outlined above and may adversely affect the Maersk Drilling Group’s ability to pursue otherwise attractive business opportunities as suppliers, vendors, partners, customers and other counterparties defer entering into contracts with, or making other decisions concerning the Maersk Drilling Group or seek to modify or terminate existing relationships with the Maersk Drilling Group.

The Maersk Drilling Group has certain customer concentrations, and the loss of a significant customer would adversely impact its financial results.

For the year ended December 31, 2021, six customers accounted for 77% of the Maersk Drilling Group’s consolidated revenue. Many of these relationships have lasted over 10 years. Of the $1.9 billion in contracted backlog as of December 31, 2021 (backlog represents expected revenues for 2022 and beyond and excludes Maersk Inspirer), 93% is attributable to six customers. The loss or material reduction of business from a significant customer could therefore have a material adverse impact on the Maersk Drilling Group’s results of operations and cash flows. Moreover, the Maersk Drilling Group’s drilling contracts subject it to counterparty risks. See “—The Maersk Drilling Group is exposed to the credit risks of key customers and certain other third parties.” The ability of each of the Maersk Drilling Group’s counterparties to perform its obligations under a contract with it will depend on a number of factors that are beyond its control such as the overall financial condition of the counterparty. Should a significant customer fail to honor its obligations under an agreement with the Maersk Drilling Group, the Maersk Drilling Group could sustain losses, which could have a material adverse effect on its business, financial condition, and results of operations.

Loss of key personnel or the failure to obtain or retain highly skilled personnel could have a material adverse effect on the Maersk Drilling Group’s operations.

The Maersk Drilling Group’s success depends on its retention of key personnel and its ability to recruit, retain and develop skilled personnel for its business. The demand for personnel with the capabilities and experience required in the oil and natural gas services industries is high, and even higher when market conditions are strong, and success in attracting and retaining such employees is not guaranteed. In addition, the oil and gas industry generally has increasingly struggled to attract talented and qualified personnel. There is intense competition for skilled personnel and there are, and may continue to be, shortages in the availability of engineers and other appropriately skilled people at all levels. Shortages of qualified personnel or the Maersk Drilling Group’s inability to obtain and retain qualified personnel could have a material adverse effect on the Maersk Drilling Group’s business, financial condition, and results of operations.

In addition, uncertainty about the effect of the Business Combination on employees may impair the Maersk Drilling Group’s ability to retain and motivate key personnel. If the key employees depart because of uncertainty about their future roles and the potential complexities of the Business Combination, the Maersk Drilling Group’s business, financial condition and results of operations could be materially and adversely affected. See also “—Labor interruptions could have a material adverse effect on the Maersk Drilling Group’s operations.”

Labor interruptions could have a material adverse effect on the Maersk Drilling Group’s operations.

As of December 31, 2021, the Maersk Drilling Group had approximately 1,700 offshore and approximately 800 onshore employees. Labor interruptions may materially impact the Maersk Drilling Group. Certain of the Maersk Drilling Group’s employees and contractors in international markets, such as Norway and to a lesser extent Denmark, are represented by labor unions and work under collective bargaining or similar agreements, which are subject to periodic renegotiation. Although the Maersk Drilling Group has not experienced any labor disruptions in connection with its own personnel, there can be no assurance that labor disruptions by the Maersk Drilling Group’s employees will not occur in the future. Further, unionized employees of third parties on whom the Maersk Drilling Group relies may be involved in strikes or other forms of labor unrest, causing operational

 

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disruptions for the Maersk Drilling Group. Such industrial actions could result in additional costs to the Maersk Drilling Group, as well as limitations on the Maersk Drilling Group’s ability to operate its drilling rigs or provide services to its customers, which may have a material adverse impact on its business, financial condition, and results of operations. Further strikes are considered a possibility each year during annual salary negotiations. If future labor strikes force Maersk Drilling Group to shut down any of its operations, it could have a material adverse impact on its business, financial condition, and results of operations.

In addition, the Maersk Drilling Group will be required to reduce the size of its workforce post-Business Combination. Even if the process is implemented in accordance with the labor law practices in the relevant jurisdictions, there is a risk that certain redundancies may be challenged by employees or labor unions, and thus leading to multiple negotiations or legal proceedings. Such legal proceedings would result in additional costs for legal fees and, if unfavorable decisions were to be made against the Maersk Drilling Group, fines or damages. There is also a risk that the process will give rise to labor actions. Furthermore, major redundancies may also negatively affect the remaining personnel’s work environment and thereby harm daily operations.

The market value of equipment currently owned by the Maersk Drilling Group, including rigs, newbuilds and any further rigs the Maersk Drilling Group may acquire in the future may decrease. This could cause the Maersk Drilling Group to incur losses due to impairment of book values or if it decides to sell assets.

The fair market value of the drilling rigs and equipment currently owned by the Maersk Drilling Group and/or those the Maersk Drilling Group may acquire in the future, may increase or decrease depending on a number of factors, including:

 

  

general economic and market conditions affecting the offshore contract drilling industry, including competition from other offshore contract drilling companies;

 

  

types, sizes and ages of the drilling rigs and equipment;

 

  

supply and demand for drilling rigs and equipment;

 

  

cost of newbuilds;

 

  

impact on financing by way of certain covenants under the Maersk Drilling Facilities Agreements (as defined herein);

 

  

prevailing level of drilling services contract day rates and utilization;

 

  

operational cost levels of rigs;

 

  

future expectations of contract day rates, utilization, and operational cost levels;

 

  

discount rate used for future earnings;

 

  

government laws and regulations, including environmental protection laws and regulations and such laws becoming more stringent; and

 

  

technological advances.

The Maersk Drilling Group evaluates its book values on a regular basis based on the factors above and if drilling rig and equipment values fall significantly, the Maersk Drilling Group may have to record an impairment loss in its financial statements, which could adversely affect the Maersk Drilling Group’s financial results and condition. In 2021, the Maersk Drilling Group recognized an impairment reversal of $11 million in connection with the sale of Maersk Gallant.

 

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Upgrade, refurbishment and repair projects are subject to risks, including delays and cost overruns, which could have an adverse impact on the Maersk Drilling Group’s available cash resources and results of operations.

The Maersk Drilling Group incurs upgrade, refurbishment and repair expenditures for its rigs from time to time, typically when upgrades are required by industry standards and/or by law. Such expenditures are also necessary in response to requests by customers, inspections, regulatory or certifying authorities or when a rig is damaged. Upgrade, refurbishment and repair projects are subject to execution risks, including cost overruns or delays resulting from, for example:

 

  

unexpected long delivery times for, or shortages of, key equipment, parts and materials as has occurred from time to time;

 

  

shortages of skilled labor and other shipyard personnel necessary to perform the work;

 

  

unforeseen increases in the cost of equipment, labor and raw materials, particularly steel as has occurred from time to time;

 

  

unforeseen design and engineering problems;

 

  

latent damages to or deterioration of hull, equipment and machinery in excess of engineering estimates and assumptions, as may occur as a result of operating in a harsh environment such as certain parts of the North Sea;

 

  

health, safety, security and environment (“HSSE”) incidents occurring during the project;

 

  

disputes with shipyards and suppliers;

 

  

changes to a particular customers’ specifications;

 

  

failure or delay in obtaining acceptance of a rig from a customer;

 

  

adverse weather conditions, such as the harsh environments found in certain parts of the North Sea or extreme weather conditions found from time to time in the US Gulf of Mexico; and

 

  

inability or delay in obtaining flag-state, classification society, certificate of inspection, or regulatory approvals.

Significant cost overruns and/or delays have in the past and could in the future adversely affect the Maersk Drilling Group’s business, financial condition, and results of operations. Additionally, capital expenditures and deferred costs for upgrading and refurbishment projects, including any planned refurbishments, upgrades or conversions of the rigs, could exceed the Maersk Drilling Group’s planned capital expenditures. Failure to complete an upgrade, refurbishment, repair or conversion projects on time may, in some circumstances, result in the delay, renegotiation or cancellation of a drilling contract and could put at risk planned arrangements to commence operations on schedule. The Maersk Drilling Group could also be exposed to contractual penalties for failure to complete an upgrade, refurbishment or repair project and consequentially a failure to commence operations in a timely manner. Rigs undergoing upgrade, refurbishment or repairs generally do not earn a day rate during the period they are out of service. Failure by the Maersk Drilling Group to minimize lost day rates resulting from the immobilization of its rigs may materially adversely impact the Maersk Drilling Group’s business, financial condition, and results of operations.

There may be limits to the Maersk Drilling Group’s ability to mobilize rigs between geographic areas, and the duration, risks and associated costs of such mobilizations may be material to the Maersk Drilling Group’s business.

The offshore drilling industry is a global market as rigs can, depending on the technical capability of a rig to relocate and operate in various environments, as well as a rig’s regulatory compliance with local technical

 

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requirements, be moved from one area to another. However, mobilization of rigs is expensive and time-consuming and can be impacted by several factors including, but not limited to, governmental regulation and customs practices, availability of tugs and dry tow vessels, weather, currents, political instability, civil unrest, and military actions and rigs may as a result become stranded. Some jurisdictions, such as Norway, enforce strict technical requirements on the rigs, requiring substantial physical modification to the rigs before they can be utilized. Such modifications may require significant capital expenditures, and as a result, may limit the use of the rigs to those jurisdictions in the future. In addition, mobilization always caries the risk of damage to the rig. Failure to mobilize a rig in accordance with the deadlines set by a specific customer contract could result in a loss of compensation, liquidated damages or the cancellation or termination of the contract. In some cases, the Maersk Drilling Group may not be paid for the time that a rig is out of service during mobilization. In addition, in the hope of securing future contracts, the Maersk Drilling Group may choose to mobilize a rig to another geographic market without a customer contract in place. If no customer contracts are acquired, Maersk Drilling Group would be required to absorb these costs. Mobilization and relocating activities could therefore potentially have a material adverse effect on the Maersk Drilling Group’s business, financial condition, and results of operations.

Reactivation of stacked rigs is subject to risks, including delays and cost overruns, which could have an adverse impact on the Maersk Drilling Group’s available cash resources and results of operations.

As of December 31, 2021, the Maersk Drilling Group had one jack-up rig stacked in Denmark and one semisubmersible rig stacked in the Caspian Sea. The Maersk Drilling Group expects to reactivate those of its rigs that are currently stacked once those rigs are contracted and may consider reactivating additional rigs in anticipation of expected positive economic returns on such reactivation. Reactivation projects are subject to execution risks, including cost overruns or delays, which may adversely affect the Maersk Drilling Group’s business, financial condition, and results of operations. Capital expenditures and deferred costs for reactivation of stacked rigs could also exceed the Maersk Drilling Group’s planned capital expenditures. Failure to complete a reactivation on time may, in some circumstances, result in the delay, renegotiation or cancellation of a drilling contract and could put at risk planned arrangements to commence operations on schedule, exposing the Maersk Drilling Group to contractual penalties. A successful reactivation project could be impacted if incorrect or insufficient preservation processes were used during the stacking period, causing increased costs and/or delays for reactivation beyond that budgeted.

Physical infrastructure and logistics systems in some of the areas where the Maersk Drilling Group operates are underdeveloped.

Physical infrastructure and logistics systems, such as roads, air transport facilities and lines of communication, in certain areas of the world where the Maersk Drilling Group operates, are underdeveloped and may not have been adequately funded and maintained. For example, the Maersk Drilling Group operates in certain areas that are concurrently developing infrastructure around the oil and gas industry, such as West Africa, and such infrastructure is not always fully developed at the time that the Maersk Drilling Group is operating in the region. This may have an effect on the efficiency and safety of the Maersk Drilling Group’s operations in these regions due to reduced efficiency, predictability, reliability, and safety in the transportation of equipment and personnel. Breakdowns or failures of any part of the physical infrastructure or logistics systems in the areas where the Maersk Drilling Group operates may disrupt the Maersk Drilling Group’s normal business activities, cause the Maersk Drilling Group to suspend operations, or make Maersk Drilling Group operations impossible. Such circumstances, or any further deterioration of the physical infrastructure in the areas where the Maersk Drilling Group operates, may increase the costs of doing business and interrupt business operations, any or all of which could have a material adverse effect on the Maersk Drilling Group’s business, financial condition, and results of operations. In addition, as many new areas for drilling for oil and natural gas are made in areas of the world that may still be developing the relevant infrastructure, the Maersk Drilling Group’s exposure to this risk may increase in the future.

 

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The Maersk Drilling Group’s business, financial condition, and results of operations may be adversely affected if it does not make accurate assumptions and estimates when tendering for new drilling contracts.

The Maersk Drilling Group must make certain assumptions and estimates when it tenders for new contracts, as well as identify key issues and risks (including, but not limited to, the degree of complexity of the project assumptions regarding rig efficiency or utilization of equipment, HSSE performance requirements, operational expenses, mobilization costs, tax payments, availability of skilled personnel and availability of critical equipment with long lead times). Assumptions are particularly necessary when tendering for a new client or entering new product or geographic markets. Even when a risk is properly identified, the Maersk Drilling Group may be unable to or may not accurately quantify it. Unforeseen or unanticipated risks and incorrect assumptions when bidding for a contract may lead to increased costs and/or loss of revenue for the Maersk Drilling Group and could adversely affect its business, financial condition, and results of operations.

The Maersk Drilling Group is exposed to the credit risks of key customers and certain other third parties.

The Maersk Drilling Group is subject to risks of loss resulting from the non-payment or non-performance by third parties of their obligations. Although the Maersk Drilling Group monitors and manages counterparty risks, some of the Maersk Drilling Group’s customers and other parties may be highly leveraged and subject to their own operating, financial and regulatory risks. For example, some of the Maersk Drilling Group’s contractual counterparts are special purpose vehicles created for the purpose of carrying out a specific offshore oil and gas project. These special purpose vehicles typically have limited assets or capital, and the Maersk Drilling Group is not always able to obtain parent or third-party performance or financial guarantees for such counterparts’ obligations. During more challenging market environments, the Maersk Drilling Group will be subject to an increased risk of customers seeking to repudiate contracts. The ability of the Maersk Drilling Group’s customers to perform their contractual obligations may also be adversely affected by restricted credit markets and economic downturns. Any bankruptcy, insolvency or inability by the Maersk Drilling Group’s customers to settle their debts or honor their obligations to the Maersk Drilling Group when they fall due may adversely affect the Maersk Drilling Group’s business, financial condition, and results of operations.

The Maersk Drilling Group may also have considerable risk in relation to joint-venture partners and other parties with whom the Maersk Drilling Group does and will collaborate with, in particular related to the possible non-performance of such parties of their obligation towards the Maersk Drilling Group. See “—The Maersk Drilling Group faces risks associated with joint ventures and investments in associates.”

The Maersk Drilling Group’s labor costs and related operating costs could increase as a result of a number of factors.

A number of factors could increase the Maersk Drilling Group’s labor costs and potentially affect other costs of operations. For example, during historic periods of high growth within the industry, the cost of qualified personnel and equipment has increased dramatically. Even during periods of low growth within the industry, personnel and operating costs related to specific operations may increase as a result of increasingly-stringent local content requirements, which require personnel, services, and equipment to be sourced from the local jurisdiction (see also “—Legal and Regulatory Risks Related to the Maersk Drilling Group—The Maersk Drilling Group is subject to complex laws and regulations in various jurisdictions that can adversely affect the cost, manner or feasibility of conducting its business.”).

Although the Maersk Drilling Group’s longer term contracts (those over 12 months in length) with customers typically include price escalation clauses, which establish agreed annual rate increases typically linked to a relevant index to cover the Maersk Drilling Group’s increased costs, there can be no assurance that such clauses will be sufficient to fully compensate the Maersk Drilling Group for higher personnel expenses or related operational costs. Further, certain countries where the Maersk Drilling Group operates may lack a suitable price escalation index, which makes it difficult for the Maersk Drilling Group to negotiate an acceptable escalation

 

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clause. Additional labor and related operating costs could have a material adverse effect on the Maersk Drilling Group’s business, financial condition, and results of operations.

The Maersk Drilling Group’s operating and maintenance costs will not necessarily fluctuate in proportion to changes in operating revenues.

The majority of Maersk Drilling’s operating revenues are derived from day rates which are subject to fluctuations depending on external factors that include, but are not limited to, the general level of oil and gas prices and the demand and supply of drilling rigs. The same cannot be said for the Maersk Drilling Group’s operating and maintenance costs which are largely fixed in nature. Since record high day rates in 2014, day rates included in new contracts for Maersk Drilling Group’s drilling rigs have declined. In response, the Maersk Drilling Group has implemented cost reductions, however operating and maintenance costs have not declined in line with day rates during the same period. From 2017 into 2020, gradual improvements in day rates were observed, reflecting an upturn in the general market. In March 2020, in conjunction with the spread of a global pandemic, day rates and demand for drilling rigs fell to all-time lows. Since then, in the backdrop of the strongest oil price since 2014, demand for drilling rigs has rebounded and day rates have seen meaningful recoveries, although they still remain below levels observed in 2014. In a situation where a drilling rig faces longer idle periods, reductions in costs may not be immediate as some of the crew may be required to prepare drilling rigs for the idle period and the Maersk Drilling Group may not be able to successfully redeploy crew members who are not required to maintain the drilling rig. Accordingly, there can be no assurance that the Maersk Drilling Group will be successful in reducing its costs proportionately under circumstances where its revenues may also have decreased. To the extent that changes in the Maersk Drilling Group’s operating and maintenance costs are not proportionate to changes in operating revenues there may be a material adverse effect on the Maersk Drilling Group’s business, financial condition, and results of operations.

The Maersk Drilling Group may not be able to keep pace with a significant step-change in technological development.

The market for the Maersk Drilling Group’s services is affected by significant technological developments that have resulted in, and will likely continue to result in, substantial improvements in equipment functions and performance throughout the industry. As a result, the Maersk Drilling Group’s future success and profitability will be dependent in part upon its ability to:

 

  

improve existing services, rigs and rental equipment;

 

  

address the increasingly sophisticated needs of its customers; and

 

  

anticipate major changes in technology and industry standards and respond to technological developments on a timely basis.

If the Maersk Drilling Group is not successful in acquiring new equipment or upgrading its existing drilling rigs, rental equipment, or the technical skill set of its employees on a timely and cost-effective basis in response to technological developments or changes in industry standards, or if a significant step-change in technology provides an alternative method for drilling, this could have a material adverse effect on the Maersk Drilling Group’s business, financial condition, and results of operations.

The Maersk Drilling Group’s success depends to a large extent on IT systems, and the occurrence of an attack or other IT systems incident or break down could result in operational disruption, theft or data corruption and could cause financial or reputational harm to the Maersk Drilling Group.

The Maersk Drilling Group’s ability to timely and correctly obtain, process and transmit data related to its operations and products is critical to the effective management of its business. A breakdown of or disruption to any of the Maersk Drilling Group’s IT systems could materially impact its relationships with customers, its reputation and its operating costs and margins.

 

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As dependence on digital technologies has increased, cyber incidents, including deliberate attacks or unintentional events, have also increased. A cyberattack could include gaining unauthorized access to digital systems for purposes of misappropriating assets or sensitive information, corrupting data or causing operational disruptions and denial-of-service. In June 2017, A.P. Moller Maersk A/S and its consolidated subsidiaries (together, the “Maersk Group”), and many other firms and organizations in Europe and the United States, experienced a malicious ransomware-based cyberattack which resulted in significant and extended disruptions to critical IT systems and infrastructure. As a part of the Maersk Group at the time, the Maersk Drilling Group relied on certain of the Maersk Group’s IT systems. The cyberattack resulted in an effective lock down of infected computers on the Maersk Group’s network, with files and documents on affected systems involuntarily encrypted and rendered inaccessible. The cyberattack significantly limited computer access on the administrative side of the Maersk Drilling Group’s IT systems and infrastructure. However, due to information security counter-measures, the Maersk Drilling Group’s operations were unaffected by the cyberattack.

The Maersk Drilling Group’s technologies, systems and networks, and those of third parties on which the Maersk Drilling Group relies, could be the target of future cyberattacks or information security breaches. Any such event could result in the unauthorized release, gathering, monitoring, misuse, loss or destruction of proprietary and other information, or other disruption to the Maersk Drilling Group’s business and operations. In addition, certain cyber incidents, such as surveillance, could remain undetected for an extended period of time. There can be no assurance that the Maersk Drilling Group will not be the target of cyberattacks in the future or suffer losses related to any such cyber incident.

Such attacks could lead to IT systems downtime, loss of access to business applications, inability to meet legal, regulatory or contractual requirements, loss of business information and/or intellectual property through destruction or theft and adversely impact production networks and production capabilities. If the Maersk Drilling Group is not successful in achieving additional operational efficiencies and enhanced IT security through ongoing maintenance, improvement and development of its IT systems, its ability to maintain operational efficiencies and cost structure relative to its competitors and to defend against such cyber incidents could deteriorate, which could have a material adverse effect on the Maersk Drilling Group’s business, financial condition, and results of operations.

The Maersk Drilling Group has engaged in divestments that may subject it to associated risks and liabilities.

The Maersk Drilling Group has provided, and may in the future provide, certain representations, warranties and indemnities in connection with the businesses it sells. For example in connection with the divestment of Maersk Inspirer in 2021 to Havila Sirius and the sale of the jack-ups Maersk Guardian and Maersk Gallant to New Fortress Energy in the first half of 2021, Maersk Drilling provided certain standard representations and warranties to the respective buyers. As a result, the Maersk Drilling Group may be subject to the risk of liability for breach of representations and warranties and/or indemnity obligations in favor of the respective buyers. While the Maersk Drilling Group does not currently believe there will be any material claims under the representations, warranties and indemnities it has provided, it is possible that claims could be made against the Maersk Drilling Group in the future. If such a claim or claims were successful, it could have a material adverse effect on the Maersk Drilling Group’s results of operations, cash flows and financial position.

The Maersk Drilling Group faces risks associated with joint ventures and investments in associates.

The Maersk Drilling Group has made investments in joint ventures and associates. Such investments are often entered into to satisfy local requirements in certain jurisdictions and the terms of the investment agreements vary depending on the counterparty and jurisdiction involved. For example, the Maersk Drilling Group enters into joint ventures with local partners in the ordinary course of business to satisfy local content requirements in certain African countries in which it operates. Additionally, in April 2018, Maersk Drilling entered a joint venture agreement with Maersk Supply Service A/S to establish Maersk Decom A/S, for the purpose of providing bundled decommissioning solutions to global oil and natural gas operators.

 

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Investments in joint ventures or associates over which the Maersk Drilling Group has partial or joint control are subject to the risk that the other shareholders of the joint venture or associate, who may have different business or investment strategies than the Maersk Drilling Group or with whom the Maersk Drilling Group may have a disagreement or dispute, may have the ability to block business, financial, or management decisions (such as the decision to distribute dividends or appoint members of management) which may be crucial to the success of the Maersk Drilling Group’s investment in the joint venture or associate, or could otherwise implement initiatives which may be contrary to the Maersk Drilling Group’s interests. The Maersk Drilling Group’s partners may be unable, or unwilling, to fulfil their obligations under the relevant shareholder agreements (for example by non-contributing working capital or other resources), or may experience financial, operational, or other difficulties that may adversely impact the Maersk Drilling Group’s investment in a particular joint venture or associate. In addition, the Maersk Drilling Group’s partners may lack sufficient controls and procedures which could expose the Maersk Drilling Group to risk. If any of the foregoing were to occur, such occurrence could have a material adverse effect on the Maersk Drilling Group’s business, financial condition, and results of operations.

Financial Risks Related to the Maersk Drilling Group

The Maersk Drilling Group operates in a capital-intensive industry and its future sources of financing are not necessarily secured.

The Maersk Drilling Group operates in a capital-intensive industry and thus may have substantial capital needs in order to be able to cover its obligations in connection with maintaining its fleet of drilling rigs and any potential future growth strategies.

The Maersk Drilling Group finances its capital expenditures through a combination of operating cash flow and debt financing. It is not certain that the Maersk Drilling Group will generate enough free cash flow to enable it to cover all its financing needs without resorting to debt financing or that its capital expenditures and other investments will yield the returns that it anticipates. The Maersk Drilling Group has an undrawn revolving credit facility (the “Maersk Drilling Revolving Credit Facility”) in an aggregate principal amount of $400,000,000. Although it is expected that the Maersk Drilling Revolving Credit Facility will provide the Maersk Drilling Group with sufficient liquidity in case of potential downside scenarios, the available amount under the facility may not sufficiently cover the needs of the Maersk Drilling Group in situations where risk factors relating to, inter alia, idle periods, lower rates, lower payments for downtime, project cost overruns and cost increases materialize in a manner not foreseen and catered for by the Maersk Drilling Group. Moreover, it may not be possible, irrespective of the general level of interest rates, to obtain additional required debt financing or it may only be possible to do so with difficulty, with delay or at unfavorable commercial terms.

If the Maersk Drilling Group’s degree of leverage is too high, it could become more vulnerable in the event of a downturn in business or the economy generally. In addition, if the Maersk Drilling Group is unable to comply with the restrictions and the financial covenants in the Maersk Drilling Facilities Agreements or any future agreement governing its indebtedness, there could be a default under the terms of these agreements, which could result in an acceleration of repayment of funds that have been borrowed.

The Maersk Drilling Group has incurred, and may in the future incur, significant amounts of debt. As of December 31, 2021, the Maersk Drilling Group had total outstanding interest-bearing debt with a carrying amount of $1.05 billion. The Maersk Drilling Group’s degree of leverage could make it more vulnerable to a downturn in business or the economy generally. The Maersk Drilling Group could default on its debt service obligations, or, if it becomes more leveraged in the future, the resulting increase in debt service requirements could cause it to default on its obligations, any of which could have a material adverse effect on the Maersk Drilling Group’s business, financial condition, and results of operations.

If the Maersk Drilling Group is unable to comply with the restrictions and covenants in the term and revolving facilities agreement with, inter alia, (i) DNB Bank ASA and Nordea Bank Abp, Filial i Norge as

 

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bookrunners, mandated lead arrangers and coordinators, (ii) BNP Paribas, Danske Bank A/S and ING Bank N.V. as bookrunners and mandated lead arrangers, (iii) Commerzbank Aktiengesellschaft and Nykredit Bank A/S as mandated lead arrangers, (iv) Barclays Bank PLC and Skandinaviska Enkilda Banken AB (publ) as lead arrangers, (v) Clifford Capital Pte. Ltd., Citibank N.A., Jersey Branch, JPMorgan Chase Bank, N.A., London Branch and Sumitomo Mitsui Banking Corporation Europe Limited as arrangers, (vi) certain of the subsidiaries of MDH as guarantors, (vii) the financial institutions listed therein as lenders, and (viii) DNB Bank ASA as agent and security agent (as amended and supplemented from time to time, the “Syndicated Facilities Agreement”), the $350 million term loan facility (the “DSF Facility”) originally dated December 10, 2018 with, inter alia, Danmarks Skibskredit A/S as arranger, original lender and security agent (the “DSF Facility Agreement” and, together with the Syndicated Facilities Agreement, the “Maersk Drilling Facilities Agreements”), or any other future debt financing agreements, there could be a default or cancellation under the terms of those agreements and lenders could terminate their commitments to lend or accelerate the outstanding loans and declare all amounts borrowed due and payable. The Maersk Drilling Group’s ability to comply with these restrictions and covenants, including meeting financial ratios and measures, is dependent on its future performance. Borrowings under debt arrangements that contain cross-acceleration or cross-default provisions may also be accelerated and become due and payable. In addition, each of the Syndicated Facilities Agreement and the DSF Facility Agreement include change of control provisions. If either of such change of control provisions is triggered, it could result in Maersk Drilling having to immediately prepay all amounts, including interest, accrued and owing under the facilities made available pursuant to the Syndicated Facilities Agreement and the DSF Facility Agreement, respectively. Moreover, the DSF Facility Agreement includes, with effect from, and subject to the occurrence of, the date of completion of the Offer, a provision to the effect that if A.P. Møller Holding A/S ceases to be represented on the Topco Board, this could result in the Maersk Drilling Group having to immediately prepay all amounts, including interest, accrued and owing under the facility made available pursuant to the DSF Facility Agreement.

In addition, the facilities under the Syndicated Facilities Agreement (the “Syndicated Facilities”) are secured, as of the date hereof, by (i) first priority mortgages on 16 of the Maersk Drilling Group’s 19 rigs/vessels (the “Syndicated Collateral Rigs”), (ii) first priority assignment of insurance of the Syndicated Collateral Rigs, (iii) first priority pledge of certain bank accounts, (iv) first priority share pledge in the group members being owners of the Syndicated Collateral Rigs and certain material intra-group charterers in respect of the Syndicated Collateral Rigs and (v) subordination of certain intra-group loans. In certain circumstances, earnings in respect of employment contracts for the Syndicated Collateral Rigs will be assigned in favor of the lenders under the Syndicated Facilities Agreement. The DSF Facility is secured by certain liens, including a first priority mortgage on Maersk Developer, Maersk Voyager and Maersk Venturer.

Accordingly, the Maersk Drilling Group’s degree of leverage, restrictive covenants in the Syndicated Facilities Agreement and the DSF Facility Agreement, respectively, or the fact that the majority of the Maersk Drilling Group’s existing assets have been pledged in favor of existing lenders could affect its ability to obtain additional financing for working capital, capital expenditures, acquisitions, development or other general corporate purposes.

If any of these events occur, the Maersk Drilling Group cannot guarantee that its assets will be sufficient to repay in full all of its outstanding indebtedness, and the Maersk Drilling Group may be unable to find alternative financing. Even if the Maersk Drilling Group could obtain alternative financing, that financing might not be on terms that are favorable or acceptable. The occurrence of such events may have a material adverse effect on the Maersk Drilling Group’s business, financial condition, and results of operations.

The Maersk Drilling Group’s results are affected by fluctuations in foreign exchange rates.

The Maersk Drilling Group’s income is primarily denominated in U.S. dollars, while the related expenses are incurred in a wide range of currencies, including U.S. dollars, Danish krone, pounds sterling, Australian dollars and Norwegian kroner. In order to manage foreign exchange rate exposure related to costs incurred in

 

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local currency, the Maersk Drilling Group has implemented a long-term hedging strategy, whereby costs associated with its head office in Denmark are hedged with financial transactions while in other jurisdictions the hedging strategy is to enter into customer contracts where an element of the contract value is in the local currency of the relevant jurisdiction to match, or hedge part of, the local costs.

There are complexities inherent in determining whether and when foreign currency exposure of the Maersk Drilling Group will materialize. The Maersk Drilling Group may also have difficulty in fully implementing its hedging strategy if its hedging counterparties are unwilling to increase derivative risk limits with it, and the Maersk Drilling Group is also exposed to the risk of non-performance or default by these hedging counterparties. The exchange rates at which the Maersk Drilling Group is able to hedge its foreign currency exposure may also deteriorate. Accordingly, its foreign currency hedging strategy may not protect it from significant changes in the exchange rate of the U.S. dollar to other currencies, in particular over the long term, which could have a negative effect on the Maersk Drilling Group’s results of operation and financial condition. In addition, in accordance with its hedging strategy, the Maersk Drilling Group estimates its local currency costs in order to hedge the local currency element of its non-U.S. dollar-denominated contracts and to the extent that any portion of such costs is not hedged, the Maersk Drilling Group will be exposed to changes in exchange rates, which may be significant. Failure to manage this cost/price exposure could have an effect on the Maersk Drilling Group’s business, financial condition, and results of operations. In addition to the foreign currency exposure that the Maersk Drilling Group faces in its operations, certain jurisdictions in which the Maersk Drilling Group operates may from time to time impose restrictions on the movement of cash thereby limiting the Maersk Drilling Group’s ability to move money from the local jurisdiction. Any such restrictions could have an adverse effect on the Maersk Drilling Group’s business, financial condition, and results of operations.

The Maersk Drilling Group is exposed to risks relating to interest rate fluctuations.

The facility made available under the DSF Facility Agreement and the majority of the facilities made available under the Syndicated Facilities Agreement have floating interest rates. In order to manage the Maersk Drilling Group’s exposure to interest rate fluctuations, the Maersk Drilling Group targets to have a portion of its gross debt at fixed interest rates either directly or through interest rate swaps over the duration of the Syndicated Facility.

If the Maersk Drilling Group is unable to effectively manage its interest rate exposure, any increase in market interest rates would increase the Maersk Drilling Group’s interest rate exposure, debt service obligations, earnings and cash flow. Such changes in interest rates could also have a material adverse effect on the Maersk Drilling Group’s business, financial condition, and results of operations.

Legal and Regulatory Risks Related to the Maersk Drilling Group

The Maersk Drilling Group is subject to complex laws and regulations in various jurisdictions that can adversely affect the cost, manner or feasibility of conducting its business.

The Maersk Drilling Group operates globally across multiple jurisdictions and is subject to numerous laws and regulations in the jurisdictions in which it operates, covering a variety of areas, including:

 

  

oil and natural gas exploration and development;

 

  

the equipment requirements for, and operation of, drilling rigs, and provision of well services;

 

  

customs duties on the importation of drilling rigs and equipment;

 

  

protection of the environment (see also “—The Maersk Drilling Group may be subject to liability under multifaceted environmental laws and regulations and contractual environmental liability, which could have a material adverse effect on the Maersk Drilling Group’s business, financial condition, and results of operations.”);

 

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taxation of offshore earnings and the earnings of expatriate personnel (see also “—The complexity and continued development of local and international tax rules and interpretation thereof and the complexity of the Maersk Drilling Group’s business, together with increased political and public focus on multinational companies’ tax payments, may expose the Maersk Drilling Group to financial and reputational risks.”);

 

  

repatriation of foreign earnings;

 

  

HSSE performance requirements;

 

  

the employment and compensation of local employees; and

 

  

the use of local suppliers, contractors, representatives and/or agents by the Maersk Drilling Group.

In addition, some foreign governments favor or require: (i) the awarding of drilling contracts to contractors wholly or partially owned by their own citizens; (ii) the partial or complete ownership of drilling rigs and/or equipment by their own citizens; (iii) the local registration of companies or branches; (iv) the use of a local representative/agent; (v) the purchase of goods or services from local suppliers; (vi) ministerial or central bank approval for payments in a currency other than the local currency and/or (vii) the employment of their own citizens. These practices, known as “local content requirements,” may, to the extent that there is a limited supply of local suppliers, partners and contractors qualified for the Maersk Drilling Group’s services, materially adversely affect the Maersk Drilling Group’s ability to compete or to operate in those regions as well as the Maersk Drilling Group’s costs and ultimately its business, financial condition, and results of operations. To the extent local content requirements are only discovered or confirmed after operations have commenced, the Maersk Drilling Group may be restricted from receiving payments for its drilling services, incur substantial costs and may ultimately be required to cease operations in the local jurisdiction. Further, it is difficult to predict what laws or regulations may be enacted in the future or how the local authorities’ implementation, interpretation, or enforcement of such regulations could adversely affect the global drilling industry and the Maersk Drilling Group’s business.

Applicable laws and regulations can significantly affect the ownership and operation of the Maersk Drilling Group’s rigs, and failure to comply may subject the Maersk Drilling Group to exclusion from the relevant market, loss of future and existing contracts, and criminal sanctions or administrative or civil remedies, including fines, denial of export privileges, injunctions, or seizures of assets. While the Maersk Drilling Group maintains policies designed to comply with various foreign laws and regulations, it may not be possible for the Maersk Drilling Group to detect or prevent every violation in every jurisdiction in which its employees, agents, subcontractors or joint venture partners are located. Should such a violation occur, the Maersk Drilling Group or its directors, officers, and employees may therefore be subject to civil and criminal penalties and to reputational damage.

The Maersk Drilling Group may be subject to liability under multifaceted environmental laws and regulations and contractual environmental liability, which could have a material adverse effect on the Maersk Drilling Group’s business, financial condition, and results of operations.

The Maersk Drilling Group’s operations are subject to a variety of laws, regulations, and requirements in multiple jurisdictions controlling the discharge of various materials into the environment (including petroleum products, asbestos, polychlorinated biphenyls and other substances that may be present at, or released or emitted from, the Maersk Drilling Group’s operations), requiring removal and clean-up of materials that may harm the environment, controlling carbon dioxide emissions, or otherwise relating to the protection of the environment. Such laws, regulations and requirements vary from jurisdiction to jurisdiction. The application of these requirements or the adoption of new requirements could have a material adverse effect on the Maersk Drilling Group’s business, financial condition, and results of operations.

 

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In general, the laws and regulations protecting the environment are becoming increasingly numerous, stringent, and complex. For example, the Maersk Drilling Group is subject to U.S. regulations (such as the Clean Water Act, and other regulations administered by the U.S. Coast Guard, the Environmental Protection Agency (“EPA”), and the BSEE), UK regulations (such as the requirement to have an Oil Pollution Emergency Plan pursuant to the Offshore Safety Directive), and other national and international regulations (such as the requirement to have a Shipboard Oil Pollution Emergency Plan pursuant to the International Maritime Organization (“IMO”)). The Maersk Drilling Group incurs, and expects to continue to incur, significant capital and operating costs to comply with applicable environmental laws and regulations.

A failure to comply with applicable environmental laws and regulations, or to obtain or maintain necessary environmental permits or approvals, or a non-compliant release of oil or other hazardous substances in connection with the Maersk Drilling Group’s operations could subject the Maersk Drilling Group to significant administrative and civil fines and penalties, criminal liability, remediation costs for natural resource damages, third-party damages, and material adverse publicity, or may result in the suspension or termination of its operations. Some laws may expose the Maersk Drilling Group to liability for the conduct of, or conditions caused by, third parties (including customers and subcontractors), or for acts that were in compliance with all applicable laws at the time they were performed. Further, some of these laws and regulations may impose direct and strict liability, rendering a company or a person liable for environmental damage without regard to negligence. The Maersk Drilling Group is required to satisfy insurance and financial responsibility requirements for potential oil (including marine fuel) spills and other pollution incidents and the insurance may not be sufficient to cover all such risks and may at times become materially more costly to acquire.

The Maersk Drilling Group has generally been able to obtain some degree of contractual indemnification pursuant to which its customers agree to hold harmless and indemnify the Maersk Drilling Group against liability for pollution, well and environmental damage. However, generally in the oil and natural gas services industry there is increasing pressure from customers to pass on a larger portion of the liabilities to contractors, such as the Maersk Drilling Group, as part of their risk management policies. Further, there can be no assurance that the Maersk Drilling Group can obtain indemnities in its contracts or that, in the event of extensive pollution and environmental damage, its customers would have the financial capability to fulfil their contractual obligations. Further, such indemnities may be deemed legally unenforceable based on relevant law, including as a result of public policy.

Finally, if a major industry incident, such as the blowout of the Macondo well in the U.S. Gulf of Mexico in 2010, was to occur again, this could lead to a regulatory response which may result in further increased operating costs and exposures. The Maersk Drilling Group cannot predict with any certainty what further impact, if any, future serious incidents may have on the regulation of offshore oil and natural gas exploration and development activity and the cost and availability of insurance coverage to cover the risks of such activities. The enactment of new or stricter regulations in the United States and other countries and increased liability for companies operating in this sector plus increased cost or unavailability of insurance could adversely affect the Maersk Drilling Group’s operations.

Regulation of GHGs and climate change related legislation, global decarbonization, and changes in the availability of financing for fossil fuel companies could have a negative impact on the Maersk Drilling Group’s business, financial condition, and results of operations.

Governments around the world are increasingly focused on enacting laws and regulations regarding climate change and regulation of greenhouse gases. Lawmakers and regulators in the jurisdictions where the Maersk Drilling Group operates have proposed or enacted regulations requiring reporting of greenhouse gas emissions and the restriction thereof. In addition, efforts have been made and continue to be made in the international community toward the adoption of international treaties or protocols that would address global climate change issues and impose reductions of hydrocarbon-based fuels, and encouraging the implementation of net-zero greenhouse gas emission pledges. The Norwegian government, for example, has declared that its goal is to

 

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achieve net-zero greenhouse gas emissions by 2030; to achieve that goal, Norway’s oil and gas producers may be required to lower their carbon output or purchase carbon credits to offset their emissions, which could unfavorably impact the Maersk Drilling Group’s customers and, in turn, the Maersk Drilling Group’s business. Laws or regulations incentivizing or mandating the use of alternative energy sources such as wind power and solar energy have also been enacted in certain jurisdictions. Numerous large cities globally and a few countries have mandated conversion from internal combustion engine-powered vehicles to electric-powered vehicles and placed restrictions on non-public transportation. Fuel conservation measures, alternative fuel requirements and increasing consumer demand for alternatives to oil could reduce demand for oil. These measures are aimed at reducing reliance on and future demand for oil, which could have a material impact on the Maersk Drilling Group’s business.

In recent years, federal, state and local governments have taken steps to reduce emissions of GHGs and encourage decarbonization. The EPA has finalized a series of GHG monitoring, reporting and emissions control rules, and the U.S. Congress has, from time to time, considered adopting legislation to reduce emissions. Several states have already taken measures to reduce emissions of GHGs primarily through the development of GHG emission inventories or regional GHG cap-and-trade programs. While we are subject to certain federal GHG monitoring and reporting requirements, our operations currently are not adversely impacted by existing federal, state and local climate change initiatives. Although Congress previously considered but did not adopt proposed legislation aimed at reducing GHG emissions, recent Congressional resolutions and the new Democratic majority in both the Senate and House of Representatives make it likely Congress will soon consider new legislation requiring decarbonization or use of renewable energy in much higher proportions. The likelihood of such legislation has increased due to the current administration. Recently, several states and local jurisdictions have pledged to remove internal combustion engines from their roads as early as 2035. Consequently, legislation and regulatory programs to reduce GHG emissions could have an adverse effect on our business, financial condition and results of operations.

Such environmental, social and governance activism and initiatives aimed at limiting climate change and reducing air pollution could impact our business activities, operations and ability to access capital. Furthermore, some parties have initiated public nuisance claims under federal or state common law against certain companies involved in the production of oil. As a result, private individuals or public entities may seek to enforce environmental laws and regulations against us and could allege personal injury, property damages or other liabilities. Although our business is not a party to any such litigation, we could be named in actions making similar allegations. An unfavorable ruling in any such case could significantly impact our operations and could have an adverse impact on our financial condition.

Laws, regulations, treaties, and international agreements related to greenhouse gases and climate change may unfavorably impact the Maersk Drilling Group’s business, its suppliers, and its customers, may result in increased compliance costs and operating restrictions, restrict the Maersk Drilling Group’s access to debt and equity capital or its ability to secure insurance coverage, and could reduce drilling in the offshore oil and natural gas industry generally, all of which would have a material adverse impact on the Maersk Drilling Group’s business, financial condition, and results of operations.

Finally, most scientists have concluded that increasing concentrations of GHGs in the Earth’s atmosphere and climate change may produce significant physical effects on weather conditions, such as increased frequency and severity of droughts, storms, floods and other climatic events. If any such effects were to occur, they could adversely affect or delay demand for the oil or natural gas produced or cause us to incur significant costs in preparing for or responding to the effects of climatic events themselves. Potential adverse effects could include disruption of our production activities, including, for example, damages to our facilities from winds or floods, increases in our costs of operation or reductions in the efficiency of our operations, impacts on our personnel, supply chain, or distribution chain, as well as potentially increased costs for insurance coverages in the aftermath of such effects. Our ability to mitigate the adverse physical impacts of climate change depends in part upon our disaster preparedness and response and business continuity planning.

 

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The Maersk Drilling Group operates globally across multiple jurisdictions, and is thereby exposed to a number of risks inherent in international operations, including political, civil, or economic disturbance.

The Maersk Drilling Group currently operates globally across multiple jurisdictions and may operate in additional countries in the future, thereby exposing it to risks that are inherent to conducting international operations, some of which are due to factors beyond the Maersk Drilling Group’s control, including:

 

  

terrorist acts, war, civil disturbances and military actions;

 

  

seizure, nationalization or expropriation of property or equipment;

 

  

political unrest or revolutions;

 

  

acts of piracy, which have historically affected ocean-going vessels (as may be found when Maersk Drilling operates in certain parts of Africa);

 

  

actions by environmental organizations;

 

  

public health threats (such as the recent and ongoing COVID-19 pandemic);

 

  

the inability to repatriate income or capital;

 

  

complications associated with repairing and replacing equipment in remote locations (such as in certain areas of the North Sea harsh environment);

 

  

delays or difficulties in obtaining necessary visas and work permits for its employees (as employees may be relocated from time to time);

 

  

wage and price controls imposed by the relevant authorities; and

 

  

imposition of trade barriers, moratoriums or sanctions and other forms of government regulation and economic conditions.

Some of these risks could result in events that limit or disrupt the Maersk Drilling Group’s operations (for example, by requiring or resulting in evacuation of personnel, cancellation of contracts, or the loss of personnel or assets), impose practical or legal barriers to the Maersk Drilling Group’s continued operations, or negatively impact the profitability of those operations, and could therefore have a material adverse effect on the Maersk Drilling Group’s business, financial condition, and results of operations. For example, the United States government has initiated or is considering imposing tariffs on certain imports and/or trade counterparties, including China, and certain foreign governments, including China, have initiated or are considering imposing retaliatory tariffs on certain United States goods. A global trade disruption, whether as the result of a prolonged “trade war” or some other reason, could result in changes to the cost of oil or other goods, impacting E&P Companies’ demand for drilling services.

If the Maersk Drilling Group or its customers are unable to acquire or renew permits and approvals required for drilling operations or are unable to comply with regulations required to maintain such permits and approvals, the Maersk Drilling Group may be forced to suspend or cease its operations, and its profitability may be reduced.

Crude oil and natural gas exploration and production operations require numerous permits and approvals for the Maersk Drilling Group and its customers from governmental agencies in the areas in which it operates. Many governmental agencies have increased regulatory oversight and permitting requirements in recent years. If the Maersk Drilling Group or its customers are not able to obtain necessary permits and approvals in a timely manner, the Maersk Drilling Group’s operations will be adversely affected. Obtaining all necessary permits and approvals may necessitate substantial expenditures to comply with the requirements of these permits and approvals. Future changes to these permits or approvals or any adverse change in the interpretation of existing permits and approvals could result in further unexpected, substantial expenditures. Such regulatory requirements and restrictions could also delay or curtail the Maersk Drilling Group’s operations, require it to make substantial expenditures to meet compliance requirements, and could have a material impact on its business, financial

 

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condition, and results of operations and may create a risk of expensive delays or loss of value if a project is unable to function as planned.

In addition, the Maersk Drilling Group is subject from time to time to audits by regulators who assess conformity with regulations. For example, in 2018, the Petroleum Safety Authority Norway (“PSA”) conducted such an audit of the Maersk Drilling Group, together with other operators in the industry, to determine how they have established, verified and maintained the barrier function for evacuation to sea on all their units which hold an Acknowledgement of Compliance. Following a finding of deficiencies, the Maersk Drilling Group received an order from the PSA to (i) establish performance requirements for the specific technical, operational or organizational barrier elements required to ensure that the individual barrier is effective, know which barriers and barrier elements are non-functioning or weakened and (ii) initiate necessary measures for correcting or compensating for deficient or weakened barriers. In response to this, the Maersk Drilling Group initiated and imposed corrective measures to comply with the order. Failure to adequately comply with orders received from regulators could result in the requirement for further substantial expenditures, the imposition of operational restrictions on the Maersk Drilling Group and, potentially, the loss of required permits or approvals, all of which could have a material adverse effect on the Maersk Drilling Group’s business, financial condition, and results of operations.

The complexity and continued development of local and international tax rules and interpretation thereof and the complexity of the Maersk Drilling Group’s business, together with increased political and public focus on multinational companies’ tax payments, may expose the Maersk Drilling Group to financial and reputational risks.

The Maersk Drilling Group operates in multiple jurisdictions, which entails an inherent tax risk, with respect to corporate taxes, value added taxes and excise duties, as well as withholding taxes and taxes regarding specific rig taxation, and allocation between jurisdictions hereof.

Most of the Maersk Drilling Group’s operations are subject to potential changes in tax regimes in a similar manner as other companies in the industry. General changes to applicable tax laws and regulations at the national level, or changes to the interpretation of existing rules or case law, could adversely affect the Maersk Drilling Group’s business, financial condition, and results of operations. The Maersk Drilling Group’s business requires it to make significant long-term capital expenditures and commitments on the basis of forecasts, including forecasts of potential tax liabilities. Changes in tax regimes or changes to interpretation of existing rules may have a detrimental effect on the business cases for certain long-term investments.

As tax laws are complex and subject to interpretation, there is a risk that the Maersk Drilling Group may not be able to maintain a position as expressed in a tax return following the filing of such tax return. The Maersk Drilling Group recognizes provisions in its financial statements for known and material tax risks based on the assessed probability of such risks materializing. As a result, such provisions are generally lower than the potential maximum risks. If unknown tax risks were to materialize, this could result in a material amount of taxes payable, penalties, and interests. Any payment of taxes exceeding the amount recognized in provisions could negatively affect the Maersk Drilling Group’s cash flows and financial results.

As a result of the Maersk Drilling Group being a multi-jurisdiction business with assets owned in different jurisdictions, it is subject to complex and subjective transfer pricing rules. The Maersk Drilling Group takes part in a significant number of intercompany transactions on a yearly basis, which includes transactions in and across different tax regimes. Such transactions must be carried out at arm’s length to comply with local transfer pricing rules and the international standards set out by the OECD. The high number of transactions and the complexity of the business, together with compliance requirements, may cause non-compliance with transfer pricing rules. Any non-compliance could result in material tax expenses, interests and/or penalties, and in some instances, double taxation. Double taxation is, in particular, a risk when operating in countries outside the European Union.

 

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The Maersk Drilling Group operates in several different value added tax or excise duty regimes and has taken part in a number of highly complex international and local transactions. The high number of transactions and the complexity of the business, together with compliance requirements, may cause non-compliance with value-added tax and excise duty rules. Any non-compliance could result in material tax expenses, interests and/or penalties.

The Maersk Drilling Group’s effective tax rate is impacted by the mix of income earned in different countries and the related corporate tax rate, as well as withholding taxes upon repatriation of profit locally. Local tax rules, interpretation of tax rules and case law in different jurisdictions change over time, and may be implemented with retroactive effect. Interest limitation rules may affect the ability to claim tax deductions for external and internal financial costs thus also increasing the effective tax rate. Changes in local tax legislation could impact the effective tax rate, as well as impose a risk of breach of such regulations.

The Maersk Drilling Group owns rigs directly or through subsidiaries in Denmark, Singapore and the United Kingdom. In Singapore, the income from rigs is subject to local shipping exemption rules imposing a tonnage based tax. However, based on prior tax cases the profit allocation between Denmark and Singapore could materially affect the effective tax rate and the underlying cash tax payments going forward. The OECD project on Base Erosion and Profit Shifting in general and also with respect to suggestions for taxation under Pillar I and Pillar II, in particular the proposed implementation of a global minimum tax rate of at least 15% for large multinational corporations on a jurisdiction-by-jurisdiction basis, may adversely affect the tax setup of the Maersk Drilling Group and result in additional cash taxes.

The political and public focus on multinational companies’ tax payments has increased in recent years, together with the complexity of the tax rules and business activities. As a result, Maersk Drilling Group’s decisions related to tax may be publicly criticized.

As a result of any of the above, the Maersk Drilling Group could experience material adverse effects on its business, financial condition, and results of operations, and could lead to reputational damage.

In addition, the Maersk Drilling Group’s tax positions are subject to audit by relevant tax authorities who may disagree with the Maersk Drilling Group’s interpretations or assessments of the effects of tax laws, treaties, or regulations, or their applicability to its corporate structure or certain of its transactions it has undertaken. Such challenges may arise even in relation to matters that have been the subject of agreement or settlements with the relevant tax authorities in the past, e.g., tax reorganizations. If any tax authority successfully challenges the Maersk Drilling Group’s operational structure, intercompany pricing policies, the taxable presence of its subsidiaries in certain countries, or if the Maersk Drilling Group loses a material tax dispute in any country, or any tax challenge of the Maersk Drilling Group’s tax payments is successful, the Maersk Drilling Group’s effective tax rate on its earnings could increase substantially and the Maersk Drilling Group’s earnings and cash flows from operations could be materially adversely affected. There are, for instance, several transactions taking place between the companies in the Maersk Drilling Group, which must be carried out in accordance with arm’s-length principles in order to avoid adverse tax consequences. Statutory documentation on a transfer pricing policy with the aim of determining arm’s-length prices for intercompany transactions has been established in order to minimize this risk. However, there can be no assurance that the tax authorities will conclude that the Maersk Drilling Group’s transfer pricing policy calculates correct arm’s-length prices for intercompany transactions. This could lead to an adjustment of the agreed price, which would in turn lead to an increased tax cost for the Maersk Drilling Group. The Maersk Drilling Group could therefore incur material amounts of tax cost in excess of currently recorded amounts if its positions are challenged and it is unsuccessful in defending them.

 

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The Maersk Drilling Group’s international activities increase the compliance risk associated with applicable anti-corruption laws.

The Maersk Drilling Group currently operates in several countries, including in some where the risks associated with fraud, bribery, and corruption are significant, and may operate in additional countries in the future. The Maersk Drilling Group may be subject to the requirements of the FCPA, the UK Bribery Act, and similar anti-corruption laws in other jurisdictions. The degree of compliance risk associated with such anti-corruption laws may vary from country to country, depending on the strength of the applicable legal and regulatory regime. The Maersk Drilling Group is committed to doing business in accordance with applicable anti-corruption laws and has adopted policies and procedures which are designed to promote legal and regulatory compliance therewith. However, the Maersk Drilling Group’s employees, agents and/or partners acting on its behalf may take actions determined to be in violation of such applicable laws and regulations. The Maersk Drilling Group in such cases may only be able to exercise limited control over the actions of its agents and partners, for example in the case of actions of employees of joint ventures, local partners, agents and sub-contractors. Any such violation could result in substantial fines, sanctions, deferred settlement agreements, civil and/or criminal penalties, or curtailment or prohibition of operations in certain jurisdictions, which might materially adversely affect the Maersk Drilling Group’s business, financial condition, and results of operations. In addition, actual or alleged violations could damage the Maersk Drilling Group’s reputation and ability to do business. Furthermore, detecting, investigating and resolving actual or alleged violations is expensive and could consume significant time and attention of senior management.

The Maersk Drilling Group’s international activities increase the compliance risks associated with economic and trade sanctions imposed by the United States, the European Union and other jurisdictions.

To support Maersk Drilling Group’s international operations, it sources labor, equipment, and parts from a variety of countries, including the U.S. and countries within the EU. Due to the international movement of assets, goods, people, and funds inherent in its operations, the Maersk Drilling Group is subject to economic and trade sanctions and export control laws and regulations imposed by the U.S. (including U.S. Department of Treasury, Office of Foreign Assets Control, U.S. Department of Commerce, and Bureau of Industry and Security), the EU, and other jurisdictions, as well as the United Nations.

Under economic and trade sanctions laws and regulations, relevant authorities may seek to restrict certain business practices and economic activities, which may consequently restrict the Maersk Drilling Group’s business, increase compliance costs, and, in the event of any violations, subject the Maersk Drilling Group to fines, penalties, costly mandatory monitoring of compliance program, and other sanctions.

The Maersk Drilling Group is committed to doing business in accordance with applicable sanctions and export control laws and regulations and has adopted policies and procedures which are designed to promote legal and regulatory compliance therewith. However, if the Maersk Drilling Group fails to comply with applicable sanctions through its foreign trade controls compliance programs, it could be subject to substantial fines, sanctions, deferred settlement agreements, civil and/or criminal penalties, or curtailment of operations in certain jurisdictions, which could materially adversely affect the Maersk Drilling Group’s business, financial condition, and results of operations. Similarly, the Maersk Drilling Group’s reliance on third-party subcontractors to perform some parts of its projects creates additional compliance risk, as such third-parties’ non-compliance may expose the Maersk Drilling Group to additional sanctions or penalties.

Expansion of sanctions programs, embargoes and other restrictions in the future (including additional designations of countries or groups subject to sanctions), or modifications in how existing sanctions are interpreted or enforced, could also place or increase restrictions on the Maersk Drilling Group’s operations in countries in which it currently conducts business or on planned and potential operations in countries in which it may conduct business in the future. If any of the risks described above materialize, it could have a material adverse impact on the Maersk Drilling Group’s business, financial condition, and results of operations.

 

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The Maersk Drilling Group’s activities require the processing of personal data, thereby exposing it to compliance risks associated with relevant data protection laws.

In the regular course of business, the Maersk Drilling Group processes certain categories of personal data about its employees, consultants, and individual representatives of various third parties. For example, the Maersk Drilling Group processes personal data of its employees and employees of suppliers and subcontractors who enter and work on its rigs, which may include identifying information, professional qualifications and health information. The Maersk Drilling Group is subject to the requirements of various data privacy and protection laws and regulations in force in the areas in which it operates, including but not limited to the EU General Data Protection Regulation. The Maersk Drilling Group is committed to doing business in accordance with applicable data protection laws and regulations and has adopted policies and procedures which are designed to promote legal and regulatory compliance therewith. However, if the Maersk Drilling Group fails to comply with applicable legal requirements through its data protection compliance program, it could be subject to substantial fines, civil and/or criminal penalties, or curtailment of relevant data processing activities in certain jurisdictions, which might materially adversely affect the Maersk Drilling Group’s business, financial condition, and results of operations.

The Maersk Drilling Group’s operations are subject to the risks of litigation and other legal and regulatory proceedings.

At any given time, the Maersk Drilling Group is involved in litigation and other legal and regulatory proceedings, including with tax authorities, arising in the ordinary course of business or otherwise. Such proceedings may include claims related to commercial, labor, employment, securities, tax, HSSE, or other matters and may result in significant damages and/or fines. The process of managing such proceedings, even if the Maersk Drilling Group is successful, may be costly, and may approximate the cost of damages sought.

Actions against the Maersk Drilling Group could also expose it to adverse publicity, which might adversely affect its brand and reputation. The course and expenses of such proceedings, and the outcome of any given matter, cannot be predicted with certainty and adverse trends, expenses, and outcomes could adversely affect the Maersk Drilling Group’s business, financial condition, and results of operations.

Where provisions have already been recognized in financial statements for ongoing legal or regulatory matters, these have been recognized as the best estimate of the expenditure required to settle the obligation as at the reporting date. Such estimates are inherently uncertain and it is possible that the eventual outcomes may differ materially from current estimates, resulting in future increases or decreases to the required provisions, or actual losses that exceed or fall short of the provisions recognized. For further information, see Note 2.8 of the Maersk Drilling consolidated financial statements and notes for the fiscal year ended December 31, 2020 included elsewhere in this prospectus.

Technology disputes involving the Maersk Drilling Group or the Maersk Drilling Group’s suppliers or sub-suppliers could impact the Maersk Drilling Group’s operations.

The services provided by the Maersk Drilling Group utilize patented or otherwise proprietary technology, and consequently involve a potential risk of infringement of third-party rights. It is not uncommon for industry participants to pursue legal action to protect their intellectual property and entities in the Maersk Drilling Group have been involved in such legal actions in the past. The Maersk Drilling Group is not currently aware of any patents that create a material risk of the Maersk Drilling Group infringing third-party rights. However, there can be no assurance that other industry participants will not pursue legal action against the Maersk Drilling Group to protect intellectual property that the Maersk Drilling Group may at least allegedly utilize. Such legal action could result in limitations on the Maersk Drilling Group’s ability to use the patented technology or require the Maersk Drilling Group to pay a fee for the continued use of intellectual property.

 

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The majority of the intellectual property rights relating to the Maersk Drilling Group are owned by the Maersk Drilling Group’s suppliers or sub-suppliers and relate to the equipment installed on the drilling rigs. In the event that the Maersk Drilling Group or one of its suppliers or sub-suppliers becomes involved in a dispute over infringement of intellectual property rights relating to assets provided by suppliers or sub-suppliers to or otherwise used by the Maersk Drilling Group, the Maersk Drilling Group may lose access to repair services, replacement parts, or could be required to cease use of the relevant assets or intellectual property. The Maersk Drilling Group could also be required to pay royalties for the use of such assets or intellectual property. The consequences of technology disputes involving the Maersk Drilling Group or its suppliers could materially adversely affect the Maersk Drilling Group’s business, financial condition, and results of operations.

Certain of the Maersk Drilling Group’s contracts with its suppliers provide the Maersk Drilling Group with contractual rights to indemnity from the supplier against intellectual property lawsuits. However, such contractual rights to indemnity may not adequately cover losses or cover all risks, and no assurances can be given that the Maersk Drilling Group’s suppliers will be willing or financially able to indemnify the Maersk Drilling Group against these risks, or that such contractual indemnities will protect the Maersk Drilling Group from adverse consequences of such technology disputes.

In addition, the Maersk Drilling Group may choose to pursue legal action to protect its intellectual property. If the Maersk Drilling Group is unable to protect and maintain its intellectual property rights, or if there are any successful intellectual property challenges proceedings against the Maersk Drilling Group, its ability to differentiate its future service offerings could diminish. None of the Maersk Drilling Group’s current service offerings in operation relies on patented information for differentiation and there are currently no such cases ongoing, but there is no guarantee that such cases or claims will not be raised in the future. In addition, from time to time, the Maersk Drilling Group may pursue action to challenge patents of competitors, suppliers and others. Should these cases not succeed, the Maersk Drilling Group may be subject to legal costs and may not be able to use the patented technology or may have to pay a fee for the continued use of such patents. The consequences of any of the intellectual property disputes with third parties described above could materially adversely affect the Maersk Drilling Group’s business, financial condition, and results of operations.

 

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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This prospectus includes “forward-looking statements” within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act. All statements other than statements of historical facts included in this prospectus, including those regarding the impact of our emergence from bankruptcy on our business and relationships, the global COVID-19 pandemic and agreements regarding production levels among members of OPEC+, and any expectations we may have with respect thereto, and those regarding rig demand, peak oil, the offshore drilling market, oil prices, contract backlog, fleet status, our future financial position, business strategy, impairments, repayment of debt, credit ratings, liquidity, borrowings under any credit facilities or other instruments, sources of funds, future capital expenditures, contract commitments, dayrates, contract commencements, extension or renewals, contract tenders, the outcome of any dispute, litigation, audit or investigation, plans and objectives of management for future operations, foreign currency requirements, results of joint ventures, indemnity and other contract claims, reactivation, refurbishment, conversion and upgrade of rigs, rig acquisitions and dispositions, industry conditions, access to financing, impact of competition, governmental regulations and permitting, availability of labor, worldwide economic conditions, taxes and tax rates, indebtedness covenant compliance, dividends and distributable reserves, timing, benefits or results of acquisitions or dispositions (including the Pacific Drilling Merger and the Business Combination and our plans, objectives, expectations and intentions related to the Pacific Drilling Merger and the Business Combination), and timing for compliance with any new regulations, are forward-looking statements. When used in this prospectus, the words “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “might,” “plan,” “possible,” “potential,” “predict,” “project,” “should,” “would,” “shall,” “will” and similar expressions are intended to be among the statements that identify forward-looking statements. Although we believe that the expectations reflected in such forward-looking statements are reasonable, we cannot assure you that such expectations will prove to be correct. These forward-looking statements speak only as of the date of this prospectus and we undertake no obligation to revise or update any forward-looking statement for any reason, except as required by law. We have identified factors, including but not limited to risks and uncertainties relating to the Pacific Drilling Merger (including the risk that the Pacific Drilling Merger disrupts the parties’ current plans and operations as a result of the consummation of the transactions contemplated by the Pacific Drilling Merger Agreement, the ability to recognize the anticipated benefits of the Pacific Drilling Merger, which may be affected by, among other things, competition, the ability of the combined company to grow and manage growth profitably, maintain relationships with customers and suppliers and retain its management and key employees, costs related to the Pacific Drilling Merger, changes in applicable laws or regulations, the possibility that the combined company may be adversely affected by other economic, business, and/or competitive factors and the ability of the combined company to improve its operating structure, financial results and profitability and to maintain relationships with suppliers, customers, employees and other third parties), the Business Combination with Maersk Drilling (including the risk that the Business Combination may not be completed in a timely manner or at all, the failure to satisfy the conditions to the consummation of the Business Combination, the occurrence of any event, change or other circumstance that could give rise to the termination of the Business Combination Agreement, the effect of the announcement or pendency of the Business Combination on Noble’s or Maersk Drilling’s business relationships, performance and business generally, the risk that the proposed Business Combination disrupts current plans of Noble or Maersk Drilling and potential difficulties in Noble’s or Maersk Drilling’s employee retention as a result of the proposed Business Combination, the outcome of any legal proceedings that may be instituted against Noble or Maersk Drilling related to the Business Combination Agreement or the proposed Business Combination, requirements, conditions or costs that may be imposed on Noble or Maersk Drilling in connection with obtaining regulatory approvals of the Business Combination, the ability of Topco to list the Topco Shares on NYSE or Nasdaq Copenhagen, volatility in the price of the securities of the combined companies (Noble and Maersk Drilling) due to a variety of factors, including changes in the competitive markets in which Topco plans to operate, variations in performance across competitors, changes in laws and regulations affecting Topco’s business and changes in the combined capital structure, the ability to implement business plans, forecasts, and other expectations (including with respect to synergies and financial and operational metrics, such as EBITDA and free cash flow) after the completion of the proposed Business

 

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Combination, and to identify and realize additional opportunities, the failure to realize anticipated benefits of the proposed Business Combination, the potential impact of announcement or consummation of the proposed Business Combination on relationships with third parties, and risks associated with assumptions that parties make in connection with the parties’ critical accounting estimates and other judgments), the effects of public health threats, pandemics and epidemics, such as the ongoing outbreak of COVID-19, and the adverse impact thereof on our business, financial condition and results of operations (including but not limited to our growth, operating costs, supply chain, availability of labor, logistical capabilities, customer demand for our services and industry demand generally, our liquidity, the price of our securities and trading markets with respect thereto, our ability to access capital markets, and the global economy and financial markets generally), the effects of actions by or disputes among OPEC+ members with respect to production levels or other matters related to the price of oil, market conditions, factors affecting the level of activity in the oil and gas industry, supply and demand of drilling rigs, factors affecting the duration of contracts, the actual amount of downtime, factors that reduce applicable dayrates, operating hazards and delays, risks associated with operations outside the US, actions by regulatory authorities, credit rating agencies, customers, joint venture partners, contractors, lenders and other third parties, legislation and regulations affecting drilling operations, compliance with or changes in environmental, health, safety, tax and other regulations or requirements or initiatives (including those addressing the impact of global climate change or air emissions), violations of anti-corruption laws, shipyard risk and timing, delays in mobilization of rigs, hurricanes and other weather conditions, and the future price of oil and gas, that could cause actual plans or results to differ materially from those included in any forward-looking statements. Actual results could differ materially from those expressed as a result of various factors. These factors include those described under “Risk Factors” in this prospectus. We cannot control such risk factors and other uncertainties, and in many cases, we cannot predict the risks and uncertainties that could cause our actual results to differ materially from those indicated by the forward-looking statements. You should consider these risks and uncertainties when you are evaluating an investment in the Notes.

 

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USE OF PROCEEDS

The Notes offered hereby are being registered for the account of the selling securityholders identified in this prospectus or in a subsequent prospectus supplement. See “Selling Securityholders.” All net proceeds from the sale of the Notes will go to the selling securityholders. We will not receive any proceeds from the sale of the Notes by the selling securityholders pursuant to this prospectus. The selling securityholders will pay any underwriting fees, discounts or commissions and transfer taxes relating to the sale of the Notes. We will pay all other costs, fees and expenses incurred in effecting the registration of the Notes covered by this prospectus, including, without limitation, the SEC registration fee with respect to the Notes covered by this prospectus, reasonable fees and expenses of our counsel, auditors and accountants and reasonable fees and expenses of underwriters to the extent customarily paid by issuers or sellers of securities.

 

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UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION

Topco is a private limited company incorporated under the laws of England and Wales to be the ultimate parent company of Noble Corporation (solely for purposes of this section, “Noble”) and Maersk Drilling. As of the filing of this prospectus, Topco has no material assets and does not operate any businesses. Accordingly, Topco’s historical financial information has not been included in this prospectus or the pro forma financial information presented below. Noble’s principal asset is all of the shares of Finco. Finco has no public equity outstanding. The unaudited pro forma condensed combined financial information of Topco have been included in this prospectus because they include the accounts of Finco and Noble conducts substantially all of its business through Finco and its subsidiaries. The unaudited pro forma condensed combined financial information of Topco and the accompanying footnotes (the “Pro Forma Financial Information”) reflects the impact of the following contemplated transaction:

 

  

Business Combination: On November 10, 2021, Noble entered into the Business Combination Agreement with Topco, Merger Sub and Maersk Drilling, pursuant to which, among other things, (i) (x) Noble will merge with and into Merger Sub, with Merger Sub surviving the Maersk Drilling Merger as a wholly owned subsidiary of Topco, and (y) the ordinary shares, par value $0.00001 per share, of Noble (solely for purposes of this section, the “Noble Shares”) will convert into an equivalent number of Topco Shares, and (ii) (x) Topco will make the Offer to Maersk Drilling’s shareholders and (y) upon the consummation of the Offer, if more than 90% of the issued and outstanding Maersk Drilling Shares are acquired by Topco, Topco will redeem any Maersk Drilling Shares not exchanged in the Offer by Topco for, at the election of the holder, either Topco Shares or cash (or, for those holders that do not make an election, only cash), under Danish law by way of the Compulsory Purchase. The Business Combination is accounted for as a business combination pursuant to Accounting Standards Codification (“ASC”) Topic 805, Business Combinations (“ASC 805”), where Noble is the accounting acquirer. Refer to Note 2 of the Pro Forma Financial Information for more information on the terms of the Business Combination Agreement, the purchase price consideration provided in connection with the Business Combination, and Noble’s determination of the accounting acquirer.

The Pro Forma Financial Information also reflects the impact of the following transactions that have been completed since January 1, 2021 but have not been included in the results of operations for the entire period presented for the pro forma condensed combined statement of operations (collectively, the “Completed Transactions”):

 

  

Noble Rig Disposal: On November 3, 2021, Noble completed the sales of jackup rigs Noble Roger Lewis, Noble Scott Marks, Noble Joe Knight, and Noble Johnny Whitstine in Saudi Arabia to ADES International Holding Limited (“ADES”) (“Noble Rig Disposal”).

 

  

Maersk Drilling Rig Disposal: On October 27, 2021, Maersk Drilling completed the divesture of the combined drilling and production unit Maersk Inspirer in Norway to Havila Sirius (“Maersk Drilling Rig Disposal”).

 

  

Pacific Drilling Merger: On April 15, 2021, Noble completed the acquisition of Pacific Drilling Company LLC (solely for purposes of this section, “Pacific” and the acquisition, the “Pacific Drilling Merger”). The Pacific Drilling Merger was accounted for as a business combination pursuant to ASC 805, where Noble was the accounting acquirer.

 

  

Noble Reorganization: On February 5, 2021, Noble successfully consummated its plan of reorganization (solely for purposes of this section, the “Noble Plan”) and emerged from bankruptcy reorganization under Chapter 11 (the “Noble Reorganization”).

 

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The Pro Forma Financial Information has been prepared under the following assumptions:

 

  

The unaudited pro forma condensed combined statement of operations for the twelve months ended December 31, 2021 assumes that the Business Combination and the Completed Transactions had occurred on January 1, 2021.

 

  

The unaudited pro forma condensed combined balance sheet as of December 31, 2021 assumes that the Business Combination had occurred on December 31, 2021. The impacts from the Completed Transactions have already been reflected in the historical consolidated balance sheets of either Noble or Maersk Drilling as of December 31, 2021; therefore, no pro forma adjustments were made for these transactions in the unaudited pro forma condensed combined balance sheet as of December 31, 2021.

 

  

The Pro Forma Financial Information presented below assumes that Topco acquires 100% of the outstanding Maersk Drilling Shares and voting rights of Maersk Drilling at closing of the Business Combination. Refer to Note 2. Business Combination with Maersk Drilling and Estimated Purchase Consideration – Minimum Acceptance Condition, for an analysis of the impact on the Pro Forma Financial Information if only 70% or 90% of the outstanding Maersk Drilling Shares and voting rights of Maersk Drilling are acquired by Topco under alternate Business Combination acceptance scenarios.

The Pro Forma Financial Information does not represent what the actual consolidated results of operations or the consolidated financial position of Topco would have been had the Business Combination and the Completed Transactions occurred on the dates assumed, nor are they necessarily indicative of future consolidated results of operations or consolidated financial position. The assumptions made by Noble underlying the pro forma adjustments are described in the accompanying notes to these unaudited pro forma condensed combined financial statements. Adjustments are based on information available to Noble’s management during the preparation of the Pro Forma Financial Information and assumptions that Noble’s management believes are reasonable and supportable. The pro forma adjustments, which are described in the accompanying notes, may be revised by Noble as additional information becomes available and is evaluated. Therefore, it is likely that the actual adjustments upon the completion of the Business Combination will differ from the pro forma adjustments, and it is possible the differences may be material.

Noble’s management has not presented the effects of anticipated costs or savings associated with certain restructuring, severance, termination-related benefits, or other integration activities resulting from the Business Combination as the specificity of the timing and nature of such items is still under evaluation as of the date of this prospectus.

The Pro Forma Financial Information should be read in conjunction with the following:

 

  

The Noble consolidated financial statements and notes included elsewhere in this prospectus.

 

  

The historical Maersk Drilling consolidated financial statements and notes for the year ended December 31, 2021 included elsewhere in this prospectus.

 

  

The Pacific condensed consolidated financial statements and notes for the interim period ended March 31, 2021 included elsewhere in this prospectus.

Neither Pacific nor any of its current subsidiaries is a subsidiary guarantor of the Successor Revolving Credit Facility (as defined herein) or the Notes, and none of their assets secure the Successor Revolving Credit Facility or the Notes. In addition, none of the Maersk Drilling assets will secure the Successor Revolving Credit Facility or the Notes upon the closing of the Business Combination.

 

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Unaudited Pro Forma Condensed Combined Statement of Operations

Twelve Months Ended December 31, 2021

(in thousands, except per share amounts)

 

     Maersk Drilling Historical       
  Noble
Pro Forma
(Note 7)
  Maersk
Drilling
Historical
(IFRS)
(Note 4)
  Maersk
Drilling
Rig
Disposal
(IFRS)
(Note
5)
  Maersk
Drilling
IFRS-to-GAAP
Adjustments
(Note 6)
  Maersk
Drilling
Historical
Adjusted
(U.S. GAAP)
  Business
Combination
Transaction
Accounting
Adjustments
(Note 3)
  Topco
Pro Forma
Combined
 

Operating revenues

       

Contract drilling services

 $723,319  $1,267,136  $(45,869) (A)  $  $1,221,267  $  $1,944,586 

Reimbursables and other

  65,541   30,000         30,000      95,541 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 
  788,860   1,297,136   (45,869     1,251,267      2,040,127 

Operating costs and expense

       

Contract drilling services

  676,275   848,805   (29,790) (A)   17,999 (C) (D)   837,014   2,640 (EE)   1,515,929 

Reimbursables

  58,651   11,000         11,000      69,651 

Depreciation and amortization

  95,811   213,202   (7,967) (A)   227,491 (C) (E)   432,726   (308,724) (AA)   219,813 

General and administrative

  94,447   80,106      2,794 (C)   82,900      177,347 

Merger and integration costs

  24,792         7,592 (D)   7,592   50,718 (BB)   83,102 

Gain on sale of operating assets, net

  (185,934  (256,292        (256,292     (442,226

Hurricane losses

  23,350                  23,350 

Special items

     20,533   194 (A)   (20,727) (D)          
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 
  787,392   917,354   (37,563  235,149   1,114,940   (255,366  1,646,966 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Operating income (loss)

  1,468   379,782   (8,306  (235,149  136,327   255,366   393,161 

Other income (expense)

       

Interest expense, net of amounts capitalized

  (24,799  (64,358  1,198 (A) (B)   1,072 (C)   (62,088  5,769 (DD)   (81,118

Interest income and other, net

  11,319   1,797         1,797      13,116 

Gain on extinguishment of debt, net

  (2,664                 (2,664

Gain on bargain purchase

  62,305                  62,305 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Loss before income taxes

  47,629   317,221   (7,108  (234,077  76,036   261,135   384,800 

Income tax benefit (provision)

  (1,068  (26,248  2,066 (A)   10,442 (F)   (13,740  (17,518) (EE)   (32,326
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Net income (loss)

 $46,561  $290,973  $(5,042 $(223,635 $62,296  $243,617  $352,474 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Basic net income (loss) per share

 $0.70  $7.05              $2.64 (CC) 

Diluted net income (loss) per share

 $0.66  $7.01              $2.55 (CC) 

Weighted average shares outstanding

       

Basic

  66,615   41,290               133,325 (CC) 

Diluted

  71,058   41,525               138,241 (CC) 

 

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Unaudited Pro Forma Condensed Combined Balance Sheet

As of December 31, 2021

(in thousands)

 

      Maersk Drilling Historical       
   Noble
Successor
Historical
  Maersk
Drilling
Historical
(IFRS)
(Note 4)
  Maersk
Drilling
IFRS-to-GAAP
Adjustments
(Note 6)
  Maersk
Drilling
Historical
Adjusted
(U.S. GAAP)
  Business
Combination
Transaction
Accounting
Adjustments
(Note 3)
  Topco
Pro Forma
Combined
 

Assets

       

Current assets:

       

Cash and cash equivalents

  $194,138  $551,088  $  $551,088  $(59,971) (FF)  $685,255 

Accounts receivable, net

   200,419   256,104      256,104      456,523 

Taxes receivable

   16,063   27,459      27,459      43,522 

Prepaid expenses and other current assets

   45,026   76,822   (7,000) (F)   69,822   (32,676) (GG)   82,172 
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Total current assets

   455,646   911,473   (7,000  904,473   (92,647  1,267,472 
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Intangible assets

   61,849               61,849 

Goodwill

               259,920 (HH)   259,920 

Property and equipment, at cost

   1,555,975   9,421,623   3,751,931 (E)   13,173,554   (10,592,596) (II)   4,136,933 

Accumulated depreciation

   (77,275  (6,598,042  (836,995) (E)   (7,435,037  7,435,037 (II)   (77,275
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Property and equipment, net

   1,478,700   2,823,581   2,914,936   5,738,517   (3,157,559  4,059,658 
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Other assets

   77,247   46,817   (8,184) (E)   38,633   (7,559) (JJ)   108,321 
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Total assets

  $2,073,442  $3,781,871  $2,899,752  $6,681,623  $(2,997,845 $5,757,220 
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Current liabilities

       

Accounts payable

  $120,389  $164,158  $  $164,158  $(10,135) (KK)  $274,412 

Accrued payroll and related costs

   48,346   33,728      33,728      82,074 

Current maturities of long-term debt

      130,097      130,097      130,097 

Taxes payable

   28,735   37,500   17,156 (F)   54,656   4,474 (JJ)   87,865 

Interest payable

   9,788   639      639      10,427 

Other current liabilities

   41,136   67,085      67,085      108,221 
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Total current liabilities

   248,394   433,207   17,156   450,363   (5,661  693,096 
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Long-term debt

   216,000   907,346      907,346   12,419 (LL)   1,135,765 

Deferred income taxes

   13,195   26,305   73,328 (E)   99,633   (80,777) (JJ)   32,051 

Other liabilities

   95,226   94,682   33,545 (F)   128,227   150,250 (JJ)   373,703 
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Total liabilities

   572,815   1,461,540   124,029   1,585,569   76,231   2,234,615 
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Shareholders’ equity

       

Common stock

   1   62,520      62,520   (62,519) (MM)   2 

Additional paid-in-capital

   1,393,255            2,072,695 (MM)   3,465,950 

Retained earnings (accumulated deficit)

   101,982   2,278,838   2,775,723 (E) (F)   5,054,561   (5,105,279) (MM)   51,264 

Accumulated other comprehensive income (loss)

   5,389   (21,027     (21,027  21,027 (MM)   5,389 
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Total shareholders’ equity

   1,500,627   2,320,331   2,775,723   5,096,054   (3,074,076  3,522,605 
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Total liabilities and equity

  $2,073,442  $3,781,871  $2,899,752  $6,681,623  $(2,997,845 $5,757,220 
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

 

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NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION

(in thousands, except per share amounts or otherwise indicated)

Note 1. Basis of Presentation

The Pro Forma Financial Information has been prepared by Noble in accordance with Article 11 of Regulation S-X as amended by the final rule, Release No. 33-10786 “Amendments to Financial Disclosures about Acquired and Disposed Businesses,” which was adopted in May 2020 and became effective on January 1, 2021. The pro forma adjustments include transaction accounting adjustments, which reflect the application of required accounting for the Business Combination and the Completed Transactions.

The historical consolidated financial statements of Noble were prepared in accordance with U.S. GAAP and shown in U.S. dollars. The historical consolidated financial statements of Maersk Drilling were prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”) and shown in U.S. dollars. Refer to Note 4 for the adjustments identified by Maersk Drilling to convert Maersk Drilling’s historical financial statements prepared in accordance with IFRS to Noble’s basis of accounting under U.S. GAAP.

Noble adopted fresh start accounting in accordance with ASC Topic 852 upon Noble’s emergence from reorganization under Chapter 11, resulting in reorganized Noble becoming the successor entity (solely for purposes of this section, “Successor”) for financial reporting purposes. In accordance with ASC Topic 852, with the application of fresh start accounting, Noble allocated its reorganization value to its individual assets based on their estimated fair values in conformity with ASC 805. Liabilities subject to compromise of the predecessor entity of Noble (solely for purposes of this section, “Predecessor”) were either reinstated or extinguished as part of the reorganization.

Note 2. Business Combination with Maersk Drilling and Estimated Purchase Consideration

Business Combination Agreement

Subject to the terms and conditions set forth in the Business Combination Agreement, at the Maersk Drilling Merger Effective Time, (i) each Noble Share issued and outstanding immediately prior to the Maersk Drilling Merger Effective Time will be converted into one newly and validly issued, fully paid and non-assessable Topco Share, (ii) each Penny Warrant outstanding immediately prior to the Maersk Drilling Merger Effective Time will cease to represent the right to acquire Noble Shares and will be automatically cancelled, converted into and exchanged for a number of Topco Shares equal to the number of Noble Shares underlying such Penny Warrant, rounded to the nearest whole share, and (iii) each Emergence Warrant outstanding immediately prior to the Maersk Drilling Merger Effective Time will be converted automatically into a Topco Warrant to acquire a number of Topco Shares equal to the number of Noble Shares underlying such Emergence Warrant, with the same terms as were in effect immediately prior to the Maersk Drilling Merger Effective Time under the terms of the applicable warrant agreement. In addition, each Noble RSU Award that is outstanding immediately prior to the Maersk Drilling Merger Effective Time will cease to represent a right to acquire Noble Shares (or value equivalent to Noble Shares) and will be exchanged for restricted share units representing the right to acquire, on the same terms and conditions as were applicable under the Noble RSU Award (including any vesting conditions), that number of Topco Shares equal to the number of Noble Shares subject to such Noble RSU Award immediately prior to the Maersk Drilling Merger Effective Time.

Subject to the terms and conditions set forth in the Business Combination Agreement, following the approval of certain regulatory filings with the DFSA, Topco has agreed to commence the Offer to acquire up to 100% of the then outstanding Maersk Drilling Shares and voting rights of Maersk Drilling, not including any treasury shares held by Maersk Drilling. The Offer is conditioned upon, among other things, holders of at least 80% of the then outstanding Maersk Drilling Shares and voting rights of Maersk Drilling tendering their shares in the Offer (which percentage may be lowered by Topco in its sole discretion to not less than 70%).

In the Offer, Maersk Drilling shareholders may exchange each Maersk Drilling Share at the Exchange Ratio of 1.6137 newly and validly issued, fully paid and non-assessable Topco Shares, and each Maersk Drilling

 

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shareholder will have the ability to elect the cash consideration for up to $1,000 of their Maersk Drilling Shares (payable in DKK), subject to an aggregate cash consideration cap of $50 million.

Each of Maersk Drilling and Topco will take steps to procure that each Maersk Drilling RSU Award that is outstanding immediately prior to the Acceptance Time is exchanged, at the Acceptance Time, with the right to receive on the same terms and conditions as were applicable under the Maersk Drilling LTI (including any vesting conditions), that number of Topco Shares equal to the product of (1) the number of Maersk Drilling Shares subject to such Maersk Drilling RSU Award immediately prior to the Acceptance Time and (2) the Exchange Ratio, with any fractional Maersk Drilling Shares rounded to the nearest whole share. Upon such exchange, such Maersk Drilling RSU Awards will cease to represent a right to receive Maersk Drilling Shares (or value equivalent to Maersk Drilling Shares).

Following the closing of the Business Combination, assuming all of the Maersk Drilling Shares are acquired by Topco through the Offer and no cash is paid by Topco in the Offer, Topco will own all of Noble’s and Maersk Drilling’s respective businesses and the former shareholders of Noble and former shareholders of Maersk Drilling will each own approximately 50% of the outstanding Topco Shares (or 50.8% and 49.2%, respectively, assuming Topco pays the full cash consideration cap of $50 million in the Offer and using the volume-weighted average closing price of the Noble Shares as of December 6, 2021), excluding dilution from outstanding Noble warrants and stock-based compensation from Noble and Maersk Drilling.

The acquisition method of accounting for business combinations was used by Noble in accordance with ASC 805, with Noble expected to be the accounting acquirer of Maersk Drilling. The Business Combination Agreement uses the fixed Exchange Ratio of Topco Shares for Maersk Drilling Shares, which is expected to result in a 52% pro forma equity stake for Noble shareholders and 48% pro forma equity stake for Maersk Drilling shareholders in the post-closing combined company (assuming a tender of 100% of Maersk Drilling’s current issued and outstanding share capital and capturing the dilutive impact of outstanding Noble in-the-money warrants after application of the treasury stock method of potential settlement). If any of the cash consideration is elected, existing Maersk Drilling shareholders’ ownership in the post-closing company would be further diluted. Accordingly, Noble shareholders are expected to hold a majority interest in the combined company after the Business Combination is completed. The board of directors will be comprised of seven members, including three individuals designated by Noble, three individuals designated by Maersk Drilling, and Robert W. Eifler, current President and Chief Executive Officer of Noble, who will serve as the President and Chief Executive Officer of the combined company. Of the three individuals designated by Noble, up to two individuals may be designated by the Investor Manager (depending upon the Investor Manager’s percentage ownership of outstanding Topco Shares). Of the three individuals designated by Maersk Drilling, up to two individuals may be designated by APMH Invest (depending upon the APMH Invest percentage ownership of outstanding Topco Shares). Further, the combined company name, ticker symbol, and headquarters will remain consistent with that of Noble. Based on Noble shareholders’ majority equity stake in the combined company, the composition of the board of directors of the combined company, and the other factors noted herein, Noble is expected to be the accounting acquirer of Maersk Drilling in accordance with the guidance of ASC 805.

 

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Purchase Price Consideration

The following table presents the calculation of preliminary purchase price consideration based on an average of the closing price per share of Noble Shares on the NYSE for the seven trailing days ended on March 18, 2022, which is used as a proxy for the market price of the Noble Shares at the closing of the Business Combination. This calculation assumes no cash consideration is elected (table below in thousands, except ratios and per share price):

 

Preliminary purchase price consideration

  

Maersk Drilling Shares issued and outstanding as of March 18, 2022

   41,291 

Fixed exchange ratio

   1.6137 
  

 

 

 

Number of Topco Shares issued

   66,631 

Noble Share price for seven trailing days ended March 18, 2022

  $31.02 
  

 

 

 

Preliminary purchase price paid for Maersk Drilling Shares

  $2,066,794 

Fair value of replacement Maersk Drilling RSU Awards attributable to the purchase price

   5,020 
  

 

 

 

Total preliminary purchase price consideration

  $2,071,814 
  

 

 

 

The purchase price consideration calculated above and applied in the Pro Forma Financial Information is preliminary and subject to modification based on the final purchase price, which includes any changes to the value of Noble’s Shares and the number of vested Maersk Drilling RSU Awards at the closing of the Business Combination. The final value of Noble’s consideration transferred will be determined based on the actual number of Noble Shares issued, the number of Maersk Drilling Shares outstanding at the closing of the Business Combination, and the market price of the Noble Shares at the closing of the Business Combination. This will likely result in a difference from the preliminary purchase consideration calculated above and that difference may be material. For example, with other assumptions held constant, an increase or decrease of 10% in the price per Noble Shares would increase or decrease the fair value of the preliminary purchase price by $207.2 million. However, a change in the closing share price does not change the number of Topco Shares issued in connection with the Business Combination or the number of underlying Topco Shares issued as replacement for the Maersk Drilling RSU Awards to be granted. The election of cash consideration does not change the purchase price consideration.

Allocation of Purchase Price Consideration to Asset Acquired and Liabilities Assumed

The allocation of the consideration, including any related tax effects, is preliminary and pending finalization of various estimates, inputs and analyses used in the valuation assessment of the specifically identifiable tangible and intangible assets acquired. Since the Pro Forma Financial Information has been prepared by Noble based on preliminary estimates of consideration and fair values attributable to the Business Combination, the actual amounts eventually recorded in accordance with the acquisition method of accounting may differ materially from the information presented.

ASC 805 requires, among other things, that the assets acquired and liabilities assumed in a business combination be recognized at their fair values as of the acquisition date. Any consideration transferred or paid in a business combination in excess of the fair value of the assets acquired and liabilities assumed should be recognized as goodwill. Noble’s management’s estimate as of the date of this prospectus is that the fair value of the net assets and liabilities acquired is less than the purchase price. The excess amount not allocated to the acquired assets and assumed liabilities was recognized as goodwill on the pro forma condensed combined balance sheet as of December 31, 2021. This preliminary determination is subject to further assessment and adjustments by Noble pending additional information sharing between the parties, more detailed third-party appraisals, and other potential adjustments.

 

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In October 2021, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers (“ASU 2021-08”). Upon the adoption of this update, contract assets and contract liabilities (i.e., deferred revenue) acquired in a business combination will be recognized and measured by the acquirer on the acquisition date in accordance with Accounting Standards Codification Topic 606, Revenue from Contracts with Customers (“ASC 606”) as if the acquirer had originated the contracts, which would generally result in an acquirer recognizing and measuring acquired contract assets and contract liabilities consistent with how they were recognized and measured in the acquiree’s financial statements. Noble adopted ASU 2021-08 on January 1, 2022, prior to the consummation of the Business Combination. Therefore, Maersk Drilling’s historical deferred revenue balance as of December 31, 2021 has been included in the preliminary purchase price allocation in accordance with ASU 2021-08 based on a preliminary assessment of the ASC 606 polices of Noble and Maersk Drilling made by Noble.

The preliminary allocation of the purchase price consideration is as follows:

 

   Estimated Fair Value 

Total current assets

  $871,797 

Property and equipment, net

   2,580,958 

Other noncurrent assets

   31,074 
  

 

 

 

Total assets acquired

   3,483,829 
  

 

 

 

Total current liabilities

   454,837 

Long-term debt

   919,765 

Deferred income taxes

   18,856 

Other liabilities

   278,477 
  

 

 

 

Total liabilities assumed

   1,671,935 
  

 

 

 

Net assets acquired

   1,811,894 

Goodwill

   259,920 
  

 

 

 

Total preliminary purchase price consideration

  $           2,071,814 
  

 

 

 

Minimum Acceptance Condition

In accordance with the Business Combination Agreement, the Minimum Acceptance Condition, where Topco acquires at least 80% of the then outstanding Maersk Drilling Shares and voting rights of Maersk Drilling (which percentage may be lowered by Topco in its sole discretion to not less than 70%), needs to be met in order to consummate the Business Combination. If more than 90% of the issued and outstanding Maersk Drilling Shares are acquired by Topco, Topco will redeem any Maersk Drilling Shares not exchanged in the Offer by Topco for, at the election of the holder, either Topco Shares or cash (or, for those holders that do not make an election, only cash), under the Compulsory Purchase. Accordingly, upon the consummation of the Business Combination, Topco may own 70% to 90%, or 100%, of the outstanding Maersk Drilling Shares and voting rights of Maersk Drilling.

 

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The Pro Forma Financial Information presented above assumes that Topco acquires 100% of the outstanding Maersk Drilling Shares and voting rights of Maersk Drilling at closing of the Business Combination. If only 70% or 90% of such shares and voting rights are acquired, Topco would recognize $0.6 billion or $0.2 billion, respectively, in noncontrolling interest on the unaudited pro forma condensed combined balance sheet as of December 31, 2021 with a corresponding reduction to additional paid in capital. The table below provides an analysis of the impact on the unaudited pro forma condensed combined statement of operations if only 70% or 90% of the outstanding Maersk Drilling Shares and voting rights of Maersk Drilling are acquired by Topco:

 

   Assuming 70% of
Maersk Drilling Shares
are acquired
   Assuming 90% of Maersk
Drilling Shares
are acquired
 
   Year Ended
December 31, 2021
   Year Ended
December 31, 2021
 

Numerator

    

Net income

  $352,474   $352,474 

Net income attributable to noncontrolling interest(1)

   98,767    32,922 
  

 

 

   

 

 

 

Net income attributable to Topco

   253,707    319,552 
  

 

 

   

 

 

 

Denominator

    

Basic shares:

    

Pro forma weighted average shares outstanding, basic, assuming 100% of Maersk Drilling Shares are acquired

   133,325    133,325 

Less: Maersk Drilling Shares not acquired

   (19,989   (6,663
  

 

 

   

 

 

 

Pro forma weighted average shares outstanding, basic

   113,336    126,662 
  

 

 

   

 

 

 

Diluted shares:

    

Pro forma weighted average shares outstanding, diluted, assuming 100% of Maersk Drilling Shares are acquired(2)

   138,241    138,241 

Less: Maersk Drilling Shares not acquired

   (19,989   (6,663
  

 

 

   

 

 

 

Pro forma weighted average shares outstanding, diluted

  $                  118,252   $                     131,578 
  

 

 

   

 

 

 

Net income per share attributable to Topco, basic

  $2.24   $2.52 

Net income per share attributable to Topco, diluted

  $2.15   $2.43 

 

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(1)

Net income attributable to noncontrolling interest on a pro forma basis is calculated by applying 30% and 10%, respectively, of noncontrolling interest ownership to Maersk Drilling pro forma net income determined as follows:

 

   Assuming 70% of
Maersk Drilling Shares
are acquired
   Assuming 90% of Maersk
Drilling Shares are
acquired
 
   Year Ended
December 31, 2021
   Year Ended
December 31, 2021
 

Maersk Drilling Historical Adjusted (U.S. GAAP)

  $62,296   $62,296 

Business Combination Transaction Accounting Adjustments (Note 3)

   266,927    266,927 
  

 

 

   

 

 

 

Maersk Drilling pro forma net income

  $329,223   $329,223 
  

 

 

   

 

 

 

Noncontrolling interest ownership percentage

   30%    10% 
  

 

 

   

 

 

 

Net income attributable to noncontrolling interest

  $98,767   $32,922 
  

 

 

   

 

 

 

 

(2)

The diluted pro forma share count excludes the potentially dilutive effect of 11,097 out-of-the-money Noble warrants.

Note 3. Business Combination Transaction Accounting Adjustments

The Business Combination transaction adjustments below are prepared based on the purchase price assumptions presented in Note 2, Business Combination with Maersk Drilling Merger and Estimated Purchase Consideration, and the assumption that Maersk Drilling shareholders will not opt for the cash consideration of up to $1,000 for each individual shareholder and $50.0 million in aggregate. The election of the cash consideration will impact the Pro Forma Financial Information as it relates to weighted average shares, loss per share, cash and equity. Such impact is further discussed in the relevant pro forma footnotes below.

Condensed Combined Statement of Operations

(AA) Depreciation and amortization

Reflects the removal of historical depreciation expense and the recording of the pro forma depreciation expense based on the estimated fair value of Maersk Drilling’s property and equipment upon the Business Combination. For pro forma purposes it is assumed that the Business Combination occurred on January 1, 2021. The pro forma adjustment to depreciation expense for the twelve months ended December 31, 2021 was calculated as follows:

 

   Twelve Months
Ended
December 31, 2021
 

Removal of historical depreciation expense

  $(432,726

Pro forma depreciation expense

   124,002 
  

 

 

 

Pro forma adjustment for depreciation and amortization

  $(308,724
  

 

 

 

 

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Drilling equipment and facilities are depreciated using the straight-line method over their estimated useful lives as of the date placed in service or date of major refurbishment. Estimated useful lives of the acquired drilling equipment range from three to thirty years. Maersk Drilling’s other property and equipment is depreciated using the straight-line method over useful lives ranging from two to forty years.

(BB) Merger and integration costs

Reflects the recognition of the following items in the pro forma statement of operations for the twelve months ended December 31, 2021:

(i) the incremental estimated transaction costs to be incurred directly in connection with the Business Combination, consisting primarily of legal and professional fees. Approximately $21.5 million and $22.2 million of estimated transaction costs are expected to be incurred subsequent to December 31, 2021 by Noble and Maersk Drilling, respectively, and such costs are reflected in the pro forma statement of operations. For the twelve months ended December 31, 2021, $9.7 million and $5.5 million of transaction costs were incurred by Noble and Maersk Drilling, respectively. The costs above are not expected to recur any period beyond twelve months from the close of the Business Combination;

(ii) stock-based compensation expense of $1.8 million due to the accelerated vesting of cash and equity settled Noble RSU Awards held by Noble’s non-employee directors in connection with the Business Combination. This cost is non-recurring and is not expected to have a continuing impact on the combined company’s operating results in future periods; and

(iii) estimated expense of $5.2 million related to the cash-based bonus expected to be paid to executive officers and certain other employees of Maersk Drilling upon completion of the Business Combination. This estimate is preliminary and subject to change based on statutory and other legal contingency matters. This cost is non-recurring and is not expected to have a continuing impact on the combined company’s operating results in future periods.

(CC) Weighted average shares outstanding and income per share

As the Business Combination is being reflected as if it had occurred at the beginning of the period presented, the calculation of weighted average shares outstanding for basic and diluted net income per share assumes that the shares issuable relating to the Business Combination have been outstanding for the entire period presented.

 

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The table below presents the components of the numerator and denominator for the pro forma income per share calculation for the periods presented:

 

   Assuming no Cash
Consideration Election
 
   Twelve Months Ended
December 31, 2021
 

Numerator

  

Net income attributable to Topco

  $352,474 
  

 

 

 

Denominator

  

Basic shares:

  

Topco Shares converted from Noble Shares

   60,152 

Topco Shares converted from Noble Penny Warrants

   6,463 

Topco Shares converted from vested Noble RSUs

   79 

Topco Shares converted from Maersk Drilling Shares

   66,631 
  

 

 

 

Pro forma weighted average shares outstanding, basic

   133,325 
  

 

 

 

Diluted shares:

  

Pro forma weighted average shares outstanding, basic

   133,325 

Dilutive effect of Topco Shares convertible from Noble in-the-money warrants

   1,263 

Dilutive effect of Topco Shares convertible from unvested Noble RSU Awards

   3,180 

Dilutive effect of Topco Shares convertible from unvested Maersk Drilling RSU Awards

   473 
  

 

 

 

Pro forma weighted average shares outstanding, diluted(1)

   138,241 
  

 

 

 

Net income per share attributable to Topco, basic

  $2.64 

Net income per share attributable to Topco, diluted

  $2.55 

 

(1)

The diluted pro forma share count excludes the potentially dilutive effect of 11,097 out-of-the-money Noble warrants.

The pro forma income per share calculation above assumed that Maersk Drilling shareholders will not opt for the cash consideration of up to $1,000 for each individual shareholder and $50.0 million in aggregate. If the maximum cash consideration is elected, the basic and diluted weighted average shares outstanding are estimated to be 131,713 and 136,629 and the basic and diluted pro forma income per share are estimated to be $2.68 and $2.58, respectively, for the twelve months ended December 31, 2021. Such estimates are based on the same share price assumption used in estimating the preliminary purchase price consideration discussed in Note 2, Business Combination with Maersk Drilling and Estimated Purchase Consideration.

 

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(DD) Interest expense

Reflects the elimination of Maersk Drilling’s historical amortization of deferred financing costs as a result of the elimination of deferred financing costs upon applying purchase accounting. No amortization of deferred financing costs would have been recorded during the twelve months ended December 31, 2021 had the Business Combination occurred on January 1, 2021.

(EE) Taxes

Reflects the pro forma adjustments to penalties and interest for tax contingencies booked as income tax benefit (provision) or contract drilling services expense as a result of the Business Combination. The income tax benefit (provision) impact was calculated by applying the appropriate statutory tax rates of the respective tax jurisdictions to which the pro forma adjustments relate.

Condensed Combined Balance Sheet

(FF) Cash and cash equivalents

Adjustment reflects (i) the payment of estimated transaction costs of $43.8 million for legal, professional and success fees incurred subsequent to December 31, 2021 by Noble and Maersk Drilling related to the Business Combination, (ii) the payment of total accrued transaction costs of $8.0 million as of December 31, 2021 for legal, professional and success fees incurred by Noble and Maersk Drilling in connection with the Business Combination, (iii) the payment of $0.9 million to Noble’s non-employee directors due to the accelerated vesting of cash settled Noble RSU Awards in connection with the Business Combination, and (iv) the payment of $7.3 million related to the cash-based bonus expected to be paid to executive officers and certain other employees of Maersk Drilling upon completion of the Business Combination. This adjustment does not reflect the election of any cash consideration. If the Maersk Drilling shareholders opt for the maximum cash consideration of $50.0 million in lieu of Topco Shares, the pro forma cash balance would be $635.3 million as of December 31, 2021.

(GG) Deferred costs

Represents the elimination of Maersk Drilling’s balances related to deferred costs on drilling contracts for items such as mobilization and precontract costs as a result of applying purchase accounting on a pro forma basis. These deferred costs are written off as there are no further performance obligations related to these costs.

(HH) Goodwill

Reflects goodwill due to the purchase price being greater than the fair value of the net assets and liabilities acquired. See Note 2, Business Combination with Maersk Drilling Merger and Estimated Purchase Consideration—Allocation of Purchase Price Consideration to Asset Acquired and Liabilities Assumed.

(II) Property and equipment, net

Represents the preliminary fair value adjustment to Property and equipment to reduce the pro forma adjusted historical net book value, on a U.S. GAAP basis, of Maersk Drilling’s floaters, jackup rigs and related equipment to fair value.

(JJ) Taxes

Reflects the pro forma adjustments to tax contingencies and income tax related accounts on the balance sheet as a result of the Business Combination.

 

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(KK) Accounts payable

Adjustment reflects (i) the payment of accrued cash-based bonuses of $2.1 million expected to be paid to executive officers and certain other employees of Maersk Drilling upon completion of the Business Combination, and (ii) the payment of total accrued transaction costs of $8.0 million as of December 31, 2021 for legal, professional and success fees incurred by Noble and Maersk Drilling in connection with the Business Combination.

(LL) Long-term debt

Represents the elimination of Maersk Drilling’s unamortized deferred financing costs as a result of applying purchase accounting on a pro forma basis.

(MM) Equity

The following adjustments were made to equity captions based on the Business Combination transaction:

 

Common stock:

  

Add: Topco converted shares (at par of $0.00001)

  $(62,519
  

 

 

 

Pro forma adjustment

  $(62,519
  

 

 

 

Additional paid-in capital:

  

Add: Topco Shares issued (less par value) to acquire Maersk Drilling

  $2,066,793 

Add: Fair value of replacement Maersk Drilling RSU Awards attributable to the purchase price

   5,020 

Add: Unrecognized compensation costs for vested equity settled Noble non-employee director RSUs

   882 
  

 

 

 

Pro forma adjustment

  $2,072,695 
  

 

 

 

Retained earnings:

  

Remove Maersk Drilling balance

  $(5,054,561

Subtract: Estimated transaction costs for Business Combination. See adjustment (BB)

   (43,751

Subtract: Unrecognized compensation costs for vested cash settled Noble non-employee director RSUs

   (1,767

Subtract: Estimated Maersk Drilling cash-based transaction bonus

   (5,200
  

 

 

 

Pro forma adjustment

  $(5,105,279
  

 

 

 

Accumulated other comprehensive income (loss):

  

Remove Maersk Drilling balance

  $21,027 
  

 

 

 

Pro forma adjustment

  $21,027 
  

 

 

 

These adjustments do not reflect the election of any cash consideration. If the Maersk Drilling shareholders opt for the maximum cash consideration of $50.0 million in lieu of Topco Shares, the pro forma equity balance would be $3,472.6 million as of December 31, 2021.

 

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Note 4. Reclassification of Maersk Drilling’s Historical Financial Statement Presentation

The following reclassifications were made as a result of the Business Combination to conform Maersk Drilling’s historical financial information to Noble’s presentation:

Statement of Operations for the Twelve Months Ended December 31, 2021

(in thousands)

 

Financial Statement Line Item

  Maersk Drilling
Historical
Presentation
  Maersk Drilling
Historical
as Presented
 

Revenue

  $1,267,136  $ 

Contract drilling services (revenue)

      1,267,136 

Cost of sales

   (920,945   

Contract drilling services (expense)

      859,839 

General and administrative

      80,106 

Reimbursables

      11,000 

Reimbursables and other

      30,000 

Impairment losses/reversals

   11,034    

Contract drilling services (expense)

      (11,034

Gain/loss on sale of non-current assets

   (256,292   

Gain on sale of operating assets, net

      (256,292

Share of results in joint ventures

   (1,424   

Interest income and other, net

      (1,424

Financial expenses

   (75,402   

Interest expense, net of amounts capitalized

      (64,358

Interest income and other, net

      (11,044

Financial income

   14,265    

Interest income and other, net

      14,265 

Tax

   (26,248   

Income tax benefit (provision)

      (26,248

 

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Balance Sheet as of December 31, 2021

(in thousands)

 

Financial Statement Line Item

  Maersk Drilling
Historical
Presentation
   Maersk Drilling
Historical
as Presented
 

Cash and bank balances

  $556,753   $ 

Cash and cash equivalents

       551,088 

Prepaid expenses and other current assets

       5,665 

Trade receivables

   237,439     

Accounts receivable, net

       237,439 

Derivatives (current)

   109     

Prepaid expenses and other current assets

       109 

Other receivables

   54,192     

Prepaid expenses and other current assets

       12,509 

Taxes receivable

       23,018 

Accounts receivable, net

       18,665 

Prepayments

   55,745     

Prepaid expenses and other current assets

       55,745 

Intangible assets

   13,401     

Property and equipment, at cost

       10,607 

Prepaid expenses and other current assets

       2,794 

Right-of-use assets

   23,223     

Other assets

       23,223 

Deferred tax (asset)

   16,891     

Other assets

       16,891 

Property, plant and equipment

   2,812,974     

Property and equipment, at cost

       9,411,016 

Accumulated depreciation

       (6,598,042

Financial non-current assets, etc.

   6,703     

Other assets

       6,703 

Trade payables

   164,158     

Accounts payable

       164,158 

Deferred income

   39,981     

Other current liabilities

       39,981 

Provisions (current)

   1,825     

Other current liabilities

       1,825 

Borrowings, current

   136,504     

Current maturities of long-term debt

       130,097 

Other current liabilities

       6,407 

Other payables

   64,980     

Other current liabilities

       18,872 

Accrued payroll and related costs

       33,728 

Taxes payable

       11,741 

Interest payable

       639 

Tax payable

   51,600     

Other liabilities

       51,600 

Borrowings, non-current

   925,685     

Long-term debt

       907,346 

Other liabilities

       18,339 

Provisions (non-current)

   8,502     

Other liabilities

       8,502 

Deferred tax (liability)

   26,305     

Deferred income taxes

       26,305 

Derivatives (non-current)

   16,241     

Other liabilities

       16,241 

Share capital

   62,520   

Common stock

       62,520 

Reserves and retained earnings

   2,257,811     

Retained earnings (accumulated deficit)

       2,278,838 

Accumulated other comprehensive income (loss)

       (21,027

 

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Note 5. Maersk Drilling Rig Disposal

The adjustments outlined below reflect adjustments to Maersk Drilling’s historical income statement for the year ended December 31, 2021 assuming the Maersk Drilling Rig Disposal had occurred on January 1, 2021. For the year ended December 31, 2021, Maersk Drilling recognized a non-recurring after-tax gain of $206.1 million on the Maersk Drilling Rig Disposal.

(A) Maersk Drilling Inspirer rig historical activity

Reflects the pro forma adjustments to eliminate the historical income statement activity attributed to the disposed Inspirer rig, which included foreign currency revaluation gains of $1.1 million presented within interest expense.

(B) Interest expense

Reflects the elimination of historical interest expense of $2.3 million associated with Maersk Drilling’s term loan facility, as the Inspirer rig triggered an $80.0 million mandatory repayment of Maersk Drilling’s outstanding borrowings under its term loan facility.

Note 6. Maersk Drilling IFRS to U.S. GAAP Conversion

The Pro Forma Financial Information reflects the material adjustments necessary to convert Maersk Drilling’s historical financial statements to U.S. GAAP and conform to Noble’s accounting policies based on an initial policy conversion assessment performed by management. Upon the consummation of the Business Combination, management will perform a comprehensive review of the two entities’ accounting policies. The adjustments outlined below are preliminary and are subject to change as additional information becomes available and as additional analysis is performed.

(C) Leases

Under IFRS, Maersk Drilling recognized right of use assets and lease liabilities for all leases, with the exceptions described in the paragraph below. However, as required by IFRS, Maersk Drilling did not distinguish between operating leases and finance leases and accounted for all leases recorded on the balance sheets similarly to finance leases under U.S. GAAP. Maersk Drilling recorded depreciation on all right-of-use assets and interest expense on all lease liabilities, while a straight-line operating expense is presented for operating leases under U.S. GAAP.

IFRS includes an exemption for leases of low-value assets, where a lessee may elect to recognize lease payments on a straight-line basis over the lease term instead of capitalizing them on the balance sheet. This exemption can be elected on a lease-by-lease basis. U.S. GAAP does not have explicit exemptions for leases of low-value assets, however, Maersk Drilling’s leases of low-value assets were not deemed material for purposes of the Pro Forma Financial Information.

The following table presents the pro forma adjustments to reclassify Maersk Drilling’s historical interest on lease liabilities and depreciation on right-of-use assets to general and administrative expense and contract drilling services expense to align with Noble’s accounting treatment under U.S. GAAP:

 

   Twelve Months
Ended
December 31, 2021
 

Elimination of Maersk Drilling’s historical interest on lease liabilities

  $1,072 

Elimination of Maersk Drilling’s historical depreciation on right-of-use assets

   (6,586

Reclassification of amounts to general and administrative expense

   2,794 

Reclassification of amounts to contract drilling services expense

   4,864 

 

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(D) Special items

Maersk Drilling has historically chosen to present as a separate line item within its historical income statements called ‘special items’ that was intended to capture the impact from non-recurring, infrequent or unusual events on the statement of operations. Such presentation of special items is disallowed under U.S. GAAP. The following table presents the pro forma adjustments to reclassify Maersk Drilling’s historical expenses presented within special items to general and administrative expense and contract drilling services expense to align with Noble’s treatment of such items under U.S. GAAP:

 

   

Twelve Months
Ended
December 31, 2021

Special items reclassified to merger and integration costs

  $7,592

Special items reclassified to contract drilling services expense

  13,135
  

 

Total Maersk Drilling special items

  $20,727
  

 

(E) Impairment of property and equipment

Under IFRS, an asset must not be carried in the financial statements at more than the highest amount to be recovered through its use or sale. If the carrying amount of an asset exceeds the asset’s recoverable amount (i.e., the higher of an asset’s or cash-generating unit’s fair value less costs of disposal or its value in use), the asset is deemed to be impaired and an impairment loss is recognized immediately in profit or loss and the value of the cash-generating unit, or the carrying amount of the asset, is reduced.

Under U.S. GAAP, an impairment loss is triggered for long-lived assets only if the asset’s, or asset group’s, carrying amount is not recoverable (i.e., the asset or asset group’s carrying amount is less than the undiscounted future cash flows expected to be derived from the asset or asset group). Additionally, the reversal of an impairment loss is not permitted. As a result of the differences in impairment calculation, an updated impairment test was prepared for Maersk Drilling as if U.S. GAAP method was applied in 2016 through 2021 to assess the effect of the different accounting treatment between IFRS and U.S. GAAP for impairment. 2016 was selected as the beginning period for the assessment because it was the earliest year in which an impairment on its property and equipment occurred and had a continuing impact on the balance as of December 31, 2021. The analysis has been performed by adjusting the discount rate to zero percent in the impairment models that were used under IFRS and recalculating the impact on depreciation expense and deferred taxes for any impairments that would not have been recorded under U.S. GAAP.

 

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The following table reflects the pro forma adjustments related to impairment to align Maersk Drilling’s historical treatment of impairment under IFRS to the treatment under U.S. GAAP, including (i) the elimination of any previously recognized impairment reversals, (ii) increasing the carrying value of property and equipment to reverse impairment losses which would not have been recorded under U.S. GAAP in prior periods, (iii) adjusting accumulated depreciation balance as of December 31, 2021 and depreciation expense for the year ended December 31, 2021 as a result of the increase in carrying value of property and equipment, and (iv) any related tax effects from the aforementioned adjustments:

 

   As of December 31,
2021
 

Pro forma Condensed Combined Balance Sheet

  

Increase to carrying amount of property and equipment

  $3,751,931 

Increase to accumulated depreciation

   (836,995

Decrease to deferred income tax assets

   (8,184

Increase to deferred income tax liabilities

   73,328 

 

   Twelve Months
Ended
December 31, 2021
 

Pro forma Condensed Combined Statements of Operations

  

Increase to depreciation expense

  $234,077 

Cumulative adjustment to income tax benefit (provision)

   10,442 

(F) Income Taxes

Reflects conversion adjustments recorded for tax positions that are not probable to be sustained under IFRS upon a tax audit and would therefore be fully reserved under U.S. GAAP. Under IFRS, such tax positions are recorded at either a weighted average or the most-likely outcome; whereas under U.S. GAAP, such positions are fully reserved.

Note 7. Noble Pro Forma Results of Operations

The following table provides for the Noble pro forma results of operations for the twelve months ended December 31, 2021 assuming the Noble Reorganization, the Pacific Drilling Merger, and the Noble Rig Disposal had occurred on January 1, 2021.

 

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Unaudited Pro Forma Condensed Combined Statement of Operations

Twelve Months Ended December 31, 2021

(in thousands, except per share amounts)

 

           Noble Reorganization    
  Noble
Predecessor
Historical
Period
From
January 1,
2021
through
February 5,
2021
  Noble
Successor
Historical
Period
From
February 6,
2021
through
December 31,
2021
  Twelve
Months
Ended
December 31,
2021
  Reorganization
Adjustments
  Fresh
Start
Adjustments
  Pro
Forma
Noble
(including
reorganization
items, net)
  Removal
of Noble
Reorganization
items, net
  Noble
Post-
reorganization
Pro Forma
 

Operating revenues

        

Contract drilling services

 $74,051  $708,131  $782,182  $  $(5,210) (c)  $776,972  $  $776,972 

Reimbursables and other

  3,430   62,194   65,624         65,624      65,624 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 
  77,481   770,325   847,806      (5,210  842,596      842,596 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Operating costs and expense

        

Contract drilling services

  46,965   639,442   686,407   920 (a)      687,327      687,327 

Reimbursables

  2,737   55,832   58,569         58,569      58,569 

Depreciation and amortization

  20,622   89,535   110,157      (11,123) (d)   99,034      99,034 

General and administrative

  5,727   62,476   68,203   803 (a)      69,006      69,006 

Merger and integration costs

     24,792   24,792         24,792      24,792 

Gain on sale of operating assets, net

     (185,934  (185,934        (185,934     (185,934

Hurricane losses

     23,350   23,350         23,350      23,350 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 
  76,051   709,493   785,544   1,723   (11,123  776,144      776,144 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Operating income (loss)

  1,430   60,832   62,262   (1,723  5,913   66,452      66,452 

Other income (expense)

        

Interest expense, net of amounts capitalized

  (229  (31,735  (31,964  (3,518) (b)      (35,482     (35,482

Gain on extinguishment of debt, net

                        

Interest income and other, net

  399   10,945   11,344         11,344      11,344 

Reorganization items, net

  252,051      252,051         252,051   (252,051) (k)    

Gain on bargain purchase

     62,305   62,305         62,305      62,305 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Income (loss) from continuing operations before income taxes

  253,651   102,347   355,998   (5,241  5,913   356,670   (252,051  104,619 

Income tax benefit (provision)

  (3,423  (365  (3,788  353 (e)   1,094 (e)   (2,341     (2,341
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Net income (loss)

 $250,228  $101,982  $352,210  $(4,888 $7,007  $354,329  $(252,051 $102,278 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Basic net income (loss) per share

 $1.00  $1.61       

Diluted net income (loss) per share

 $0.98  $1.51       

Weighted average shares outstanding

        

Basic

  251,115   63,186       

Diluted

  256,571   67,628       

 

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     Pacific Drilling Merger          
  Noble
Post-
reorganization
Pro Forma
  Pacific
Successor
Historical
From
January 1,
2021
through
April 15,
2021
  Pacific
Drilling
Merger
Transaction
Accounting
Adjustments
  Noble /
Pacific
Pro Forma
Combined
  Noble Rig
Disposal
Transaction
Accounting
Adjustments
  Noble
Pro Forma
 

Operating revenues

      

Contract drilling services

 $776,972  $30,893  $  $807,865  $(84,546) (l)  $723,319 

Reimbursables and other

  65,624   1,791      67,415   (1,874) (l)   65,541 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 
  842,596   32,684      875,280   (86,420  788,860 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Operating costs and expense

      

Contract drilling services

  687,327   43,586   2,108 (f)   733,021   (56,746) (l)   676,275 

Reimbursables

  58,569   1,090      59,659   (1,008) (l)   58,651 

Depreciation and amortization

  99,034   12,026   (7,656) (g)   103,404   (7,593) (l)   95,811 

General and administrative

  69,006   25,441      94,447      94,447 

Merger and integration costs

  24,792         24,792      24,792 

Gain on sale of operating assets, net

  (185,934        (185,934     (185,934

Hurricane losses

  23,350         23,350      23,350 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 
  776,144   82,143   (5,548  852,739   (65,347  787,392 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Operating income (loss)

  66,452   (49,459  5,548   22,541   (21,073  1,468 

Other income (expense)

      

Interest expense, net of amounts capitalized

  (35,482  (371  371 (h)   (35,482  10,683 (l)(m)   (24,799

Gain on extinguishment of debt, net

     (2,664     (2,664     (2,664

Interest income and other, net

  11,344   (25     11,319      11,319 

Reorganization items, net

                  

Gain on bargain purchase

  62,305         62,305      62,305 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Income (loss) from continuing operations before income taxes

  104,619   (52,519  5,919   58,019   (10,390  47,629 

Income tax benefit (provision)

  (2,341  (263  (8) (i)   (2,612  1,544 (l)   (1,068
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Net income (loss)

 $102,278  $(52,782 $5,911  $55,407  $(8,846 $46,561 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Basic net income (loss) per share

      $0.70 (j) 

Diluted net income (loss) per share

      $0.66 (j) 

Weighted average shares outstanding

      

Basic

       66,615 (j) 

Diluted

       71,058 (j) 

 

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Noble Reorganization

Reorganization Adjustments

(a) Stock based compensation

Reflects an increase in stock-based compensation expense based on the new awards issued in connection with the Noble Reorganization.

(b) Interest expense

The adjustment reflects change of interest expense for the Predecessor as a result of the Noble Plan. Under the Noble Plan, all amounts outstanding under the 2017 Credit Facility (as defined in “Note 8—Debt” to the Audited Financial Statements included elsewhere in this prospectus), including the interest, were paid in full and all of Noble’s then outstanding senior notes were settled for the Noble Shares, Tranche 1 Warrants and Tranche 2 Warrants. Upon emergence, Noble entered into the Revolving Credit Agreement (as defined herein) that provides for a $675.0 million senior secured revolving credit facility (with a $67.5 million sublimit for the issuance of letters of credit thereunder) (solely for purposes of this section, the “Successor Revolving Credit Facility”) and issued $216.0 million of Notes with an interest rate of LIBOR + 4.75% and 11% payable semi-annually, respectively. The pro forma adjustment to interest expense was calculated as follows:

 

   Twelve Months Ended
December 31, 2021
 

Reversal of Predecessor interest expense

  $(229

Pro forma interest on the Successor Revolving Credit Facility and Notes

   3,505 

Amortization of Successor deferred financing costs

   242 
  

 

 

 

Pro forma adjustment for interest expense

  $3,518 
  

 

 

 

Assuming an increase in interest rates on the Revolving Credit Agreement and Notes of 1/8%, pro forma interest would increase by $0.1 million.

Fresh Start Adjustments

(c) Amortization of favorable contract

Adjustment reflects the amortization of favorable contracts with customers as a result of adopting fresh start accounting. The remaining useful life of the favorable contracts range between 1-3 years.

(d) Depreciation and amortization

Reflects the pro forma decrease in depreciation expense based on new preliminary asset values for the Predecessor as a result of adopting fresh start accounting. The pro forma adjustment to depreciation expense was calculated as follows:

 

   Twelve Months Ended
December 31, 2021
 

Removal of Predecessor depreciation expense

  $(20,622

Pro forma depreciation expense

   9,499 
  

 

 

 

Pro forma adjustment for depreciation and amortization

  $(11,123
  

 

 

 

 

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Drilling equipment and facilities are depreciated using the straight-line method over their estimated useful lives as of the date placed in service or date of major refurbishment. Estimated useful lives of Noble’s drilling equipment range from three to thirty years. Other property and equipment is depreciated using the straight-line method over useful lives ranging from two to forty years.

(e) Income tax

Reflects the pro forma adjustment to tax expense as a result of reorganization adjustments and adopting fresh start accounting. The income tax impact was calculated by applying the appropriate statutory tax rate of the respective tax jurisdictions to which the pro forma adjustments relate, and which are reasonably expected to occur.

Pacific Successor Historical from January 1, 2021 through April 15, 2021

The following reclassifications were made as a result of the Pacific Drilling Merger to conform Pacific’s historical financial information to Noble’s presentation:

 

Financial Statement Line Item

  Pacific Historical
Presentation
   Pacific Historical
as Presented
 

Contract drilling services

  $1,791   $ 

Reimbursables and other

       1,791 

Operating expense

   44,959     

Contract drilling services (expense)

       43,586 

Reimbursables

       1,090 

Depreciation and amortization

       283 

Other expense

   (25    

Interest income and other, net

       (25

Pacific Drilling Merger

(f) Contract drilling services

Noble has an accounting policy to expense costs for materials and supplies as received or deployed to the drilling units, while Pacific’s historical policy was to carry inventory at average cost and recognize them in earnings upon consumption. Adjustment reflects the change in contract drilling services expense related to Pacific’s materials and supplies inventory during the period from January 1, 2021 through April 15, 2021 to align with Noble’s treatment of such costs.

(g) Depreciation and amortization

Reflects the replacement of historical depreciation expense with the pro forma depreciation expense based on the estimated fair value of Pacific’s property and equipment upon the Pacific Drilling Merger. For pro forma purposes it is assumed that the Pacific Drilling Merger occurred on January 1, 2021. The pro forma adjustment to depreciation expense for the twelve months ended December 31, 2021 was calculated as follows:

 

   Twelve Months Ended
December 31, 2021
 

Removal of historical depreciation expense

  $(12,026

Pro forma depreciation expense

   4,370 
  

 

 

 

Pro forma adjustment for depreciation and amortization

  $(7,656
  

 

 

 

Drilling equipment and facilities are depreciated using the straight-line method over their estimated useful lives as of the date placed in service or date of major refurbishment. Estimated useful lives of Noble’s drilling

 

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equipment range from three to thirty years. Other property and equipment is depreciated using the straight-line method over useful lives ranging from two to forty years.

(h) Interest expense

Reflects the elimination of interest expense recorded at the successor entity of Pacific which was associated with the new senior secured delayed draw term loan facility entered into on December 31, 2020. In connection with the Pacific Drilling Merger, the facility was terminated, and the related interest expense removed from the unaudited pro forma condensed combined statement of operations.

(i) Income tax

Reflects the pro forma adjustment to tax expense. The income tax impact was calculated by applying the appropriate statutory tax rates of the respective tax jurisdictions to which the pro forma adjustments relate.

(j) Weighted average shares outstanding

The Noble pro forma weighted average shares outstanding calculation for the twelve months ended December 31, 2021 assumes the Noble Reorganization and the Pacific Drilling Merger had occurred on January 1, 2021. The table below presents the components of the numerator and denominator for the Noble pro forma income per share calculation for the periods presented:

 

   

Twelve Months Ended
December 31, 2021

Numerator

  

Net income attributable to Noble

  $46,561
  

 

Denominator

  

Basic shares:

  

Noble ordinary shares (excluding penny warrants)

  60,152

Noble penny warrants

  6,463
  

 

Pro forma weighted average shares outstanding, basic

  66,615
  

 

Diluted shares:

  

Pro forma weighted average shares outstanding, basic

  66,615

Dilutive effect of Noble in-the-money warrants

  1,263

Dilutive effect from unvested Noble RSU Awards

  3,180
  

 

Pro forma weighted average shares outstanding, diluted

  71,058
  

 

Net income per share attributable to Noble, basic

  $0.70

Net income per share attributable to Noble, diluted

  $0.66

(k) Reorganization items

Reflects the removal of Reorganization items within the Predecessor period of Noble. All expenses are directly related to the Noble Reorganization.

 

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Noble Rig Disposal

The adjustments outlined below reflect adjustments to Noble’s historical income statement for the year ended December 31, 2021 assuming the Noble Rig Disposal had occurred on January 1, 2021. For the year ended December 31, 2021, Noble recognized a non-recurring after-tax gain of $168.3 million on the Noble Rig Disposal.

(l) Noble Saudi rigs historical activity

Reflects the pro forma adjustments to eliminate the historical activity attributed to the disposed Noble Saudi jackup rigs from the unaudited pro forma condensed combined statement of operations.

(m) Interest expense

Reflects the elimination of total interest expense of $10.7 million associated with the Successor Revolving Credit Facility, including $1.2 million of pro forma interest expense recorded for the Noble Predecessor historical period and $9.5 million of interest expense recorded during the Noble Successor historical period. The Successor Revolving Credit Facility was fully paid down using the cash proceeds obtained through the Noble Rig Disposal.

 

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion is intended to assist you in understanding our financial position at December 31, 2021 and 2020, and our results of operations for the period from February 6 through December 31, 2021, the period from January 1 through February 5, 2021, and for each of the years in the two-year period ended December 31, 2020. The following discussion should be read in conjunction with the audited consolidated financial statements of Noble Parent and Finco and related notes included elsewhere in this prospectus (the “Audited Financial Statements”).

As used in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section, the term (i) “Predecessor” refers to Legacy Noble and, as appropriate, its subsidiaries prior to and including the Effective Date, and (ii) “Successor” refers to Noble Parent and, as appropriate, its subsidiaries subsequent to the Effective Date. Finco was an indirect, wholly-owned subsidiary of Legacy Noble prior to the Effective Date and has been a direct, wholly-owned subsidiary of Noble Parent since the Effective Date. Noble Parent’s principal asset is all of the shares of Finco. Finco has no public equity outstanding. The consolidated financial statements of Noble Parent include the accounts of Finco and Noble Parent conducts substantially all of its business through Finco and its subsidiaries. As such, the terms “Predecessor” and “Successor” also refer to Finco, as the context requires.

Executive Overview

We provide contract drilling services to the international oil and gas industry with our global fleet of mobile offshore drilling units. Our business strategy focuses on a high-specification fleet of both floating and jackup rigs, and the deployment of our drilling rigs in established and emerging offshore oil and gas basins around the world.

We emphasize safe operations, environmental stewardship, social responsibility, and robust governance to sustain the superior performance and maximize stakeholder value achieved through our qualified and well-trained crews, the care of our surroundings and local communities, an effective management system, and a superior fleet. We also carefully manage rig operating costs through innovative systems and processes, including the use of data analytics and predictive maintenance technology.

As of the date of this prospectus, our fleet of 19 drilling rigs consisted of 11 floaters and eight jackups strategically deployed worldwide. We typically employ each drilling unit under an individual contract, and many contracts are awarded based upon a competitive bidding process.

For the period from February 6, 2021 through December 31, 2021, our financial and operating results from continuing operations include:

 

  

operating revenues totaling $770.3 million;

 

  

net income attributable to Noble Corporation of $102.0 million, or $1.51 per diluted share;

 

  

net cash provided by operating activities totaling $51.6 million;

 

  

successfully completed our financial restructuring and emerged from the Chapter 11 Cases with a substantially delevered balance sheet; and

 

  

nothing drawn on the Revolving Credit Facility as of December 31, 2021 and cash of approximately $194.1 million.

Demand for our services is driven by the offshore exploration and development programs of oil and gas operators, which in turn are influenced by many factors. Those factors include, but are not limited to, the price

 

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and price stability of oil and gas, the relative cost and carbon footprint of offshore resources within each operator’s broader energy portfolio, global macroeconomic conditions, world energy demand, the operator’s strategy toward renewable energy sources, environmental considerations and governmental policies.

Since 2014, the offshore drilling industry has faced the challenging combination of a significant rig oversupply and an overall reduction in offshore development and exploration activity that has reduced global offshore rig demand. Industry conditions gradually improved in 2019, which was evidenced by increasing utilization and improving dayrates. However, in the first half of 2020, this gradual recovery was abruptly halted as oil prices experienced concurrent supply and demand shocks. The supply shock was driven by production disagreements among OPEC+ member that resulted in sudden and a significant oversupply of oil, and the demand shock by the onset of the global COVID-19 pandemic that resulted in meaningful reduction in global economic activity and produced significant uncertainty among our customers. However, by early 2021, oil prices returned to pre-pandemic levels and continued to rise throughout 2021. Concurrent with this oil price recovery, contracting activity improved as our customer base started to increase their capital budgets. These events had significant impact on our results in 2020 and 2021.

Recent Events

Business Combination with Maersk Drilling. On November 10, 2021, Noble Parent entered into the Business Combination Agreement with Topco, Merger Sub and Maersk Drilling, pursuant to which, among other things, (i) (x) Noble Parent will merge with and into Merger Sub, with Merger Sub surviving the Maersk Drilling Merger as a wholly owned subsidiary of Topco, and (y) the Ordinary Shares will convert into an equivalent number of Topco Shares, and (ii) (x) Topco will make the Offer to Maersk Drilling’s shareholders and (y) upon the consummation of the Offer, if more than 90% of the issued and outstanding Maersk Drilling Shares are acquired by Topco, Topco will redeem any Maersk Drilling Shares not exchanged in the Offer by Topco for, at the election of the holder, either Topco Shares or cash (or, for those holders that do not make an election, only cash), under Danish law by way of the Compulsory Purchase. The Board and the board of directors of Maersk Drilling have unanimously approved and adopted the Business Combination Agreement. Subject to the satisfaction or waiver of the conditions set forth in the Business Combination Agreement, the Business Combination is expected to close in mid-2022. For additional information, see “Prospectus Summary—Business Combination with Maersk Drilling.”

Irrevocable Undertaking. Concurrently with the entry into the Business Combination Agreement, APMH Invest, which holds approximately 41.6% of the issued and outstanding Maersk Drilling Shares, entered into the Undertaking with Noble Parent, Topco and Maersk Drilling, pursuant to which APMH Invest has, among other things, agreed to (a) accept the Offer in respect of the Maersk Drilling Shares that it owns and not withdraw such acceptance; (b) waive the right to receive any cash consideration in the Offer; (c) not vote in favor of any resolution to approve a competing alternative proposal; and (d) subject to certain exceptions, be bound by certain transfer restrictions with respect to the Maersk Drilling Shares that it owns. The Undertaking will lapse if (i) the Business Combination Agreement is terminated in accordance with its terms; (ii) Topco announces that it does not intend to make or proceed with the Business Combination; or (iii) the Offer lapses or is withdrawn and no new, revised or replacement offer is announced within 10 business days.

Letters of Intent. In addition, certain other Maersk Drilling shareholders, together holding approximately 12% of the issued and outstanding Maersk Drilling Shares, have delivered letters of intent expressing their intention to accept or procure the acceptance of the Offer in respect of the Maersk Drilling Shares that they own.

Maersk Drilling Voting Agreements. Concurrently with the entry into the Business Combination Agreement, Noble Parent and Maersk Drilling entered into the Maersk Drilling Voting Agreements with the Noble Supporting Shareholders, which collectively held approximately 53% of the issued and outstanding Ordinary Shares as of the date of the Maersk Drilling Voting Agreements. Pursuant to the Maersk Drilling Voting Agreements, each Noble Supporting Shareholder has, among other things, agreed to (a) consent to and vote (or

 

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cause to be voted) its Ordinary Shares (i) in favor of all matters, actions and proposals contemplated by the Business Combination Agreement for which Noble Parent shareholder approval is required and any other matters, actions or proposals required to consummate the Business Combination in accordance with the Business Combination Agreement, and (ii) among other things, against any competing alternative proposal; (b) be bound by certain other covenants and agreements relating to the Business Combination; and (c) subject to certain exceptions, be bound by certain transfer restrictions with respect to a portion of their securities. The Maersk Drilling Voting Agreements will terminate upon the earliest to occur of (x) the date that is ten months from the date of the Maersk Drilling Voting Agreements, (y) the closing date of the Business Combination and (z) the termination of the Business Combination Agreement pursuant to its terms. Notwithstanding the foregoing, each Noble Supporting Shareholder will have the right to terminate the applicable Maersk Drilling Voting Agreement if the Business Combination Agreement has been amended in a manner that materially and adversely affects such Noble Supporting Shareholder (including, without limitation, a reduction of the economic benefits to the Noble Supporting Shareholders contemplated thereby or an extension of the End Date beyond the date (as such date may be extended) set forth in the Business Combination Agreement).

New Relationship Agreement. At the closing of the Business Combination, Topco will enter into the New Relationship Agreement with the Existing Noble Investor party to the Bankruptcy Relationship Agreement and APMH Invest, which will set forth certain director designation rights of such Topco shareholders following the closing of the Business Combination. In particular, pursuant to the New Relationship Agreement, each of the Existing Noble Investor and APMH Invest will be entitled to designate (a) two nominees to the Topco Board so long as the Existing Noble Investor or APMH Invest, as applicable, owns no fewer than 20% of the then outstanding Topco Shares and (b) one nominee to the Topco Board so long as the Existing Noble Investor or APMH Invest, as applicable, owns fewer than 20% but no fewer than 15% of the then outstanding Topco Shares. Each nominee of the Existing Noble Investor and APMH Invest will meet the independence standards of the NYSE with respect to Topco; provided, however, that APMH Invest shall be permitted to have one nominee who does not meet such independence standards so long as such nominee is not an employee of Topco or any of its subsidiaries.

Maersk Drilling Merger Registration Rights Agreement. At the closing of the Business Combination, Topco will enter into the Maersk Drilling Merger RRA with APMH Invest pursuant to which, among other things, and subject to certain limitations set forth therein, APMH Invest will have customary demand and piggyback registration rights. In addition, pursuant to the Maersk Drilling Merger RRA, APMH Invest will have the right to require Topco, subject to certain limitations set forth therein, to effect a distribution of any or all of its Topco Shares by means of an underwritten offering. Topco is not obligated to effect any underwritten offering unless the dollar amount of the securities of APMH Invest to be sold is reasonably likely to result in gross sale proceeds of at least $20 million.

Saudi Purchase and Sale Agreement. On August 25, 2021, Finco and certain subsidiaries of Noble Parent entered into a Purchase and Sale Agreement (the “Purchase and Sale Agreement”) to sell the jackup rigs operated by the Noble group of companies in Saudi Arabia to ADES for a purchase price of $292.4 million in cash. Pursuant to the terms of the Purchase and Sale Agreement, the jackups, Noble Roger Lewis, Noble Scott Marks, Noble Joe Knight, and Noble Johnny Whitstine, together with certain related assets, were sold to ADES. The closing of the sale occurred in November 2021, and we recognized a gain of $185.9 million, net of transaction costs, associated with the disposal of these assets. The Purchase and Sale Agreement also included certain covenants that Noble has agreed to not carry on or be engaged in the operation of jackup drilling rigs in the territorial waters of the Kingdom of Saudi Arabia in the Arabian Gulf for a term after the closing date of (i) one year for purposes of drilling gas wells and (ii) two years for the purposes of drilling oil wells.

Hurricane Ida. During the period from February 6 through December 31, 2021, costs related to damages resulting from the encounter of the Noble Globetrotter II with Hurricane Ida in the US Gulf of Mexico, including costs to recover the lower marine riser package (the “LMRP”), totaled $23.4 million, inclusive of insurance proceeds of $7.5 million. In preparation for the approaching storm, the rig successfully secured the well it was

 

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drilling and detached the LMRP from the blowout preventer without incident. However, during transit to avoid the storm, a number of suspended riser joints and the LMRP separated from the rig, which were later successfully recovered. Due to the environmental conditions, a number of crew members were treated for minor injuries and released from medical care. Noble has given force majeure notice to the customer of the Noble Globetrotter II in accordance with the governing drilling services contract. Noble has insurance coverage for property damage to rigs due to named storms in the US Gulf of Mexico with a $10.0 million deductible per occurrence and a $50.0 million annual limit; however, our insurance policies may not adequately cover our losses and related claims, which could adversely affect our business.

NYSE Listing. On June 9, 2021, the Ordinary Shares began trading on the NYSE under the symbol “NE.”

Pacific Drilling Merger. On March 25, 2021, Noble Parent entered into the Pacific Drilling Merger Agreement with Pacific Drilling, pursuant to which Noble Parent acquired Pacific Drilling in an all-stock transaction on April 15, 2021. Pursuant to the terms and conditions set forth in the Pacific Drilling Merger Agreement, (a) each Membership Interest in Pacific Drilling was converted into the right to receive 6.366 Ordinary Shares and (b) each Pacific Warrant was converted into the right to receive 1.553 Ordinary Shares. As part of the transaction, Pacific Drilling’s equity holders received 16.6 million Ordinary Shares, or approximately 24.9% of the outstanding Ordinary Shares and Penny Warrants at closing. In connection with this acquisition, Noble Parent acquired seven floaters and subsequently sold two floaters, the Pacific Bora and Pacific Mistral, in June 2021 for net proceeds of $29.7 million.

The Pacific Drilling Merger provided incremental capacity to serve existing customers in the floater market, broadening our customer relationships and facilitating Noble’s reentry into the growing West Africa and Mexico regions. For additional information, see “Note 4—Acquisitions” to the Audited Financial Statements included elsewhere in this prospectus.

Emergence from Chapter 11. On the Effective Date, Legacy Noble successfully completed its financial restructuring and Legacy Noble and its debtor affiliates emerged from the Chapter 11 Cases. As a result, Noble emerged from bankruptcy on the Effective Date with a substantially de-levered balance sheet and less than $400.0 million of debt. Noble’s capital structure as of the Effective Date includes a $675.0 million Revolving Credit Facility, of which nothing is drawn as of December 31, 2021 and $216.0 million of Notes. On the Effective Date, Legacy Noble’s ordinary shares were cancelled and Ordinary Shares were issued to Legacy Noble’s former bondholders. Certain former bondholders and former equity holders of Legacy Noble were also issued warrants to purchase shares of Noble Parent. All cash payments made by Noble under the Plan on the Effective Date were funded from cash on hand, proceeds of the Rights Offering, and proceeds from the new Revolving Credit Facility. For additional information regarding the Chapter 11 Cases, the Rights Offering and our emergence, see “Note 2—Chapter 11 Emergence” to the Audited Financial Statements included elsewhere in this prospectus.

Fresh Start Accounting. In connection with our emergence from bankruptcy, Noble Parent and Finco qualified for and applied fresh start accounting on the Effective Date. With the application of fresh start accounting, we allocated the reorganization value to our individual assets and liabilities based on their estimated fair values. The Effective Date fair values of our assets and liabilities differed materially from their recorded values as reflected on the historical balance sheets. The application of fresh start accounting resulted in new reporting entities with no beginning retained earnings or accumulated deficit. Accordingly, our financial statements and notes thereto after the Effective Date are not comparable to our financial statements and notes to prior to that date. To facilitate our discussion and analysis of our financial condition and results of operations herein, we refer to the reorganized company as the “Successor” for periods subsequent to the Effective Date, and “Predecessor” for periods prior to the Effective Date. Furthermore, our presentations herein include a “black line” division to delineate the lack of comparability between the Predecessor and Successor.

 

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Outlook

The global rig supply continues to come down from historic highs as Noble and other offshore drilling contractors retire less capable and idle assets. Concurrently, the incoming supply of newbuild offshore drilling rigs has diminished materially, with several newbuild rigs stranded in shipyards generally requiring dayrates in excess of current market rates in order to be economic to be brought into the global fleet.

Looking forward to 2022, we expect business opportunities and results in offshore drilling to improve as the global economy continues to stabilize and improve. However, the market outlook in our business varies by geographical region and water depth. We are continually encouraged by the ongoing indications of recovery in the ultra-deepwater floater market in the US Gulf of Mexico, South America, and Africa. Harsh environment jackup markets show stable opportunities and remain an important portion of our business.

While we are cautiously optimistic about recent positive trends, our industry continues to face challenges and uncertainties and is unlikely to return to activity levels experienced in historical cycle peaks. Energy rebalancing trends have accelerated in recent years as evidenced by promulgated or proposed government policies and commitments by many of our customers to further invest in sustainable energy sources. Our industry could be further challenged as our customers rebalance their capital investments to include alternative energy sources, as well as respond to the normal cycles that have historically existed in our industry. We also expect inflationary pressures to persist as well as continue to experience disruptions in supply chains and distribution channels. Nonetheless, the global energy demand is predicted to increase over the coming decades, and we expect that offshore oil and gas will continue to play an important and sustainable role in meeting this demand.

At December 31, 2021, we had a total contract drilling services backlog of approximately $1.2 billion, which includes a commitment of approximately 58 percent of available days for 2022. For additional information regarding our backlog, see “—Contract Drilling Services Backlog” below.

Contract Drilling Services Backlog

We maintain a backlog of commitments for contract drilling services. Our contract drilling services backlog reflects estimated future revenues attributable to signed drilling contracts. While backlog did not include any letters of intent as of December 31, 2021, in the past we have included in backlog certain letters of intent that we expect to result in binding drilling contracts.

We calculate backlog for any given unit and period by multiplying the full contractual operating dayrate for such unit by the number of days remaining in the period, and include certain assumptions based on the terms of certain contractual arrangements, discussed in the notes to the table below. The reported contract drilling services backlog does not include amounts representing revenues for mobilization, demobilization and contract preparation, which are not expected to be significant to our contract drilling services revenues, amounts constituting reimbursables from customers or amounts attributable to uncommitted option periods under drilling contracts or letters of intent. Backlog herein also has not been adjusted for the non-cash amortization related to favorable customer contract intangibles which were recognized on the Effective Date.

 

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The table below presents the amount of our contract drilling services backlog, and the percent of available operating days committed for the periods indicated:

 

  Year Ending December 31, (1) 
           Total                2022                    2023                   2024         
  (In thousands) 

Contract Drilling Services Backlog

    

Floaters (2)(3)

 $1,065,168 $615,645 $448,226 $1,297

Jackups 

  169,619   165,044   4,575   —   
 

 

 

  

 

 

  

 

 

  

 

 

 

Total

 $1,234,787  $780,689 $452,801 $1,297
 

 

 

  

 

 

  

 

 

  

 

 

 

Percent of Available Days Committed (4)

    

Floaters (3)

   62%   43%   ** 

Jackups

   52%   2%   —% 

Total

   58%   26%   ** 
  

 

 

  

 

 

  

 

 

 

 

**

Not a meaningful percentage.

 

(1)

Represents a twelve-month period beginning January 1. Some of our drilling contracts provide customers with certain early termination rights and, in limited cases, those termination rights require minimal or no notice and minimal financial penalties.

 

(2)

Two of our long-term drilling contracts with Shell, the Noble Globetrotter I and Noble Globetrotter II, contain a dayrate adjustment mechanism that utilizes an average of market rates that match a set of distinct technical attributes and is subject to a modest discount, beginning on the fifth-year anniversary of the contract and continuing every six months thereafter. Each of the contracts now has a contractual dayrate floor of $275,000 per day. Once the dayrate adjustment mechanism becomes effective and following any idle periods, the dayrate for these rigs will not be lower than the higher of (i) the contractual dayrate floor or (ii) the market rate as calculated under the adjustment mechanism. The impact to contract backlog from these amendments has been reflected in the table above and the backlog calculation assumes that, after any idle period at the contractual stacking rate, each rig will work at its respective dayrate floor for the remaining contract term.

 

(3)

Noble entered into a multi-year Commercial Enabling Agreement (the “CEA”) with ExxonMobil in February 2020. Under the CEA, dayrates earned by each rig will be updated at least twice per year to the projected market rate at the time the new rate goes into effect, subject to a scale-based discount and a performance bonus that appropriately aligns the interests of Noble and ExxonMobil. Under the CEA, the table above includes awarded and remaining term of two years related to each of the four following rigs: the Noble Tom Madden, Noble Bob Douglas, Noble Don Taylor and Noble Sam Croft. Under the CEA, ExxonMobil may reassign terms among rigs. The aforementioned additional backlog included in the table above for periods where the rate is yet to be determined is estimated by using the most recently negotiated CEA rate.

 

(4)

Percent of available days committed is calculated by dividing the total number of days our rigs are operating under contract for such period by the product of the number of our rigs and the number of calendar days in such period.

The amount of actual revenues earned and the actual periods during which revenues are earned may be materially different than the backlog amounts and backlog periods presented in the table above due to various factors, including, but not limited to, the impact of the COVID-19 pandemic, current oversupply of oil, shipyard and maintenance projects, unplanned downtime, the operation of market benchmarks for dayrate resets, achievement of bonuses, weather conditions, reduced standby or mobilization rates and other factors that result in applicable dayrates lower than the full contractual operating dayrate. In addition, amounts included in the backlog may change because drilling contracts may be varied or modified by mutual consent or customers may

 

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exercise early termination rights contained in some of our drilling contracts or decline to enter into a drilling contract after executing a letter of intent. As a result, our backlog as of any particular date may not be indicative of our actual operating results for the periods for which the backlog is calculated. See “Risk Factors—Risks Related to Our Business and Operations—Our current backlog of contract drilling revenue may not be ultimately realized.”

As of December 31, 2021, ExxonMobil and Shell represented approximately 60.2 percent and 18.1 percent of our backlog, respectively.

Results of Operations

Results for the Period from February 6 through December 31, 2021 and the Period from January 1 through February 5, 2021 Compared to the Year Ended December 31, 2020

Net income for the period from February 6 through December 31, 2021 was $102.0 million, or $1.51 per diluted share, on operating revenues of $770.3 million. Net income for the period from January 1 through February 5, 2021 was $250.2 million, or $0.98 per diluted share, on operating revenues of $77.5 million, compared to a net loss for the year ended December 31, 2020 of $4.0 billion, or $15.86 per diluted share, on operating revenues of $1.0 billion.

As a result of Noble conducting all of its business through Finco and its subsidiaries, the financial position and results of operations for Finco, and the reasons for material changes in the amount of revenue and expense items between the period from February 6 through December 31, 2021, the period from January 1 through February 5, 2021 and the year ended December 31, 2020, would be the same as the information presented below regarding Noble in all material respects, with the exception of operating income (loss), the gain on bargain purchase and reorganization cost, net. For the period from February 6 through December 31, 2021 and the period from January 1 through February 5, 2021, Finco’s operating income was $47.7 million and $0.3 million higher, respectively, than that of Noble. The operating income difference for both the predecessor and successor period is primarily a result of expenses related to corporate legal costs and administration attributable to Noble for operations support and stewardship-related services. Included in the difference in operating income for the period from February 6 through December 31, 2021 were additional charges related to Merger and integration costs, primarily for the proposed Business Combination with Maersk Drilling and the acquisition of Pacific Drilling. In addition to the difference in operating income, the Noble successor period included a gain on bargain purchase of $62.3 million which was not recognized by Finco. In addition to the difference in operating income, the Noble predecessor period from January 1, 2021 through February 5, 2021 included a gain related to litigation claims of $77.3 million, which was not recognized by Finco.

During the year ended December 31, 2020, Finco’s operating loss was $100.6 million lower than that of Noble. The operating loss difference is primarily a result of expenses related to ongoing litigation, administration, and Chapter 11 bankruptcy charges directly attributable to Noble for operations support and stewardship-related services. Included in the difference in operating income for the year ended December 31, 2020, Noble recorded a $46.5 million expense related to litigation claims, which was not recognized by Finco and was settled in the fourth quarter of 2020 through reorganization costs, net. This resulted in a net gain of $15.0 million which is included in Noble’s Net loss but was not recognized by Finco.

Key Operating Metrics

Operating results for our contract drilling services segment are dependent on three primary metrics: operating days, dayrates and operating costs. We also track rig utilization, which is a function of operating days and the number of rigs in our fleet. For more information on operating costs, see “—Contract Drilling Services” below.

 

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The following table presents the average rig utilization, operating days and average dayrates for our rig fleet for the periods indicated:

 

  Average Rig Utilization (1)  Operating Days (2)  Average Dayrates (2) 
  Successor  Predecessor  Successor  Predecessor  Successor  Predecessor 
  Period From
February 6,
2021

through
December 31,
2021
  Period From
January 1,
2021
through
February 5,
2021
  Year Ended
December 31,
2020
  Period From
February 6,
2021

through
December  31,
2021
  Period From
January 1,
2021
through
February 5,
2021
  Year Ended
December 31,
2020
  Period From
February 6,
2021

through
December  31,
2021
  Period From
January 1,
2021
through
February 5,
2021
  Year Ended
December 31,
2020
 

Floaters (3)

  71  86  60  2,561   216   2,354  $208,443  $231,745  $208,723 

Jackups (3)

  68  58  71  2,545  252   3,147   88,742   95,212   132,722 
    

 

 

  

 

 

  

 

 

    

Total (3)

  70  68  66  5,106   468   5,501  $148,780 $158,228 $165,276 
    

 

 

  

 

 

  

 

 

    

 

(1)

We define utilization for a specific period as the total number of days our rigs are operating under contract, divided by the product of the total number of our rigs, including cold stacked rigs, and the number of calendar days in such period. Information reflects our policy of reporting on the basis of the number of available rigs in our fleet, excluding newbuild rigs under construction.

 

(2)

An operating day is defined as a calendar day during which a rig operated under a drilling contract. We define average dayrates as revenue from contract drilling services earned per operating day. Average dayrates have not been adjusted for the non-cash amortization related to favorable customer contract intangibles.

 

(3)

Calculations in the above table include the rigs acquired from the Pacific Drilling Merger after the effective date of April 15, 2021. Calculations in the above table exclude the four jackups sold in the fourth quarter of 2021, following the closing of the sale on November 5, 2021.

 

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Contract Drilling Services

The following table presents the operating results for our contract drilling services segment for the period from February 6 through December 31, 2021, the period from January 1 through February 5, 2021 and the year ended 2020 (dollars in thousands):

 

  Successor  Predecessor 
  Period From
February 6, 2021
through
December 31, 2021
  Period From
January 1, 2021
through
February 5, 2021
  Year
Ended
December 31,
2020
 

Operating revenues:

   

Contract drilling services

 $708,131 $74,051 $909,236 

Reimbursables and other (1)

  62,194   3,430   55,036 
 

 

 

  

 

 

  

 

 

 
 $770,325  $77,481  $964,272 
 

 

 

  

 

 

  

 

 

 

Operating costs and expenses:

   

Contract drilling services

 $639,442  $46,965  $567,487 

Reimbursables (1)

  55,832   2,737   48,188 

Depreciation and amortization

  89,535   20,622   374,129 

General and administrative

  62,476   5,727   121,196 

Merger and integration costs

  24,792   —     —   

Gain on sale of operating assets, net

  (185,934  —     —   

Hurricane losses and (recoveries), net

  23,350   —     —   

Pre-petition charges

  —     —     14,409 

Loss on impairment

  —     —     3,915,408 
 

 

 

  

 

 

  

 

 

 
  709,493   76,051   5,040,817 
 

 

 

  

 

 

  

 

 

 

Operating income (loss)

 $60,832  $1,430  $(4,076,545
 

 

 

  

 

 

  

 

 

 

 

(1)

We record reimbursements from customers for out-of-pocket expenses as operating revenues and the related direct costs as operating expenses. Changes in the amount of these reimbursables generally do not have a material effect on our financial position, results of operations or cash flows.

 

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Contract Drilling Services Revenues

 

     Successor   Predecessor 
     Period From
February 6, 2021 through
December 31, 2021
   Period From
January 1, 2021 through
February 5, 2021
  Year Ended
December 31, 2020
 
     Floaters   Jackups   Floaters  Jackups  Floaters  Jackups 

Contract drilling services revenues

  $482.3   $225.8   $50.1  $24.0  $491.4  $417.8 

Utilization

    71   68   86  58  60  71

Operating Days

    2,561    2,545    216   252   2,354   3,147 

Average Dayrates

   $208,443   $88,742   $231,745  $95,212  $208,723  $132,722 
   

 

 

   

 

 

   

 

 

  

 

 

  

 

 

  

 

 

 

Contracted rigs

 

— Beginning

   7    11    7   11   7   13 
 

— Ending

   9    6    7   11   7   11 
   

 

 

   

 

 

   

 

 

  

 

 

  

 

 

  

 

 

 

Total rigs

 

— Beginning

   7    12    7   12   12   13 
 

— Acquired

   7    —      —     —     —     —   
 

— Disposed

   (2   (4   —     —     (5  (1
   

 

 

   

 

 

   

 

 

  

 

 

  

 

 

  

 

 

 
 

— Ending

   12    8    7   12   7   12 
   

 

 

   

 

 

   

 

 

  

 

 

  

 

 

  

 

 

 

Floaters. During the period from February 6, 2021 to December 31, 2021, average rig utilization for the fleet was primarily benefited by the disposal of five floaters in November and December 2020 and, to a lesser extent, the lack of suspensions due to the COVID-19 pandemic. The five floaters disposed in 2020 did not operate throughout 2020. In April 2021, we acquired seven floaters in the Pacific Drilling Merger and disposed of two acquired cold stacked floaters in June 2021. The prompt disposal of these rigs mitigated downward impact on utilization. Of the five floaters acquired in 2021, one remained under contract the entire period since its acquisition, contributing to operating days at average dayrates similar to certain rigs in our existing fleet, two contributed operating days a portion of the period at similar or higher dayrates to certain rigs our existing fleet, and two remained cold stacked since acquisition. The two acquired cold stacked rigs had a downward effect on average rig utilization. During 2021, four legacy floaters had a modest rise in average dayrates. The higher dayrates on the acquired rigs in 2021 and the rise in dayrates on our four legacy floaters were partly offset by a lower dayrate on our semisubmersible rig when it began operations under a new contract during 2021. Contract drilling revenue for the period from February 6, 2021 to December 31, 2021 included $91.3 million related to the floaters acquired in the Pacific Drilling Merger, and was reduced by (i) $51.5 million of non-cash amortization related to customer contract intangibles which were recognized on the Effective Date, (ii) $11.6 million related to the Noble Globetrotter II when it went on a lower force majeure rate in August 2021 until late December 2021 due to damage sustained by Hurricane Ida and (iii) the lack of amortizations related to deferred revenue that could not be recognized on the Effective Date. During the year ended December 31, 2020, fleet utilization and operating days were affected by owning five floaters which did not operate substantially all of the year and a short-term suspension of one floater during the COVID-19 pandemic.

Jackups. We began 2020 with each rig in our fleet of 13 jackups contracted. However, during the first half of 2020, primarily as a result of the COVID-19 pandemic, three of our 13 rigs in our jackup fleet rolled off contracts with few opportunities for renewal, two were placed on temporary suspension during the year, and one was placed on long-term suspension through the remainder of 2020. Three other jackups experienced breaks in contracted operating days. In August 2020, we disposed of one jackup. The largest effect on our average dayrates during 2020 was a reduction in the dayrate on the Noble Lloyd Noble in September 2020, which historically carried a dayrate significantly higher than the average dayrates of our jackup fleet. Despite the challenges of 2020, we ended the year with 11 of our 12 jackups contracted. During the period from February 6, 2021 to December 31, 2021, the average dayrate of our jackup fleet was negatively impacted further when the Noble Lloyd Noble incurred extended shipyard time of approximately eight months before it returned to operations at

 

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end of October 2021. In early November 2021, Noble disposed of four operating jackups in Saudi Arabia. Operating days were reduced by the sale of these rigs while the utilization metric is unaffected. The lingering effects of the COVID-19 pandemic, suspensions and the lack of new contracts at higher rates in our jackup fleet had negative effects on our average dayrate in the jackup fleet in the period ended December 31, 2021.

January 1, 2021 to February 5, 2021. During the period ended February 5, 2021, average dayrates for our floaters were benefited by a general rise in dayrates in late 2020. Utilization for our floaters during this period was benefited by the fact we had disposed of idled floaters in 2020 and had not yet acquired certain uncontracted rigs in the Pacific Drilling Merger in April 2021. Average dayrates and utilization for our jackup fleet during this period were negatively affected by the lingering effects of the COVID-19 pandemic, where five of the 12 jackups we began 2021 with were idled, as compared to one of 13 rigs to begin the year 2020.

Operating Costs and Expenses

During the period from February 6 through December 31, 2021, contract drilling services costs, which includes our local administrative and operations support, totaled $639.4 million. Ten of our 12 floaters were contracted and operated during the period, four of which were contracted and operated for the full period. Eleven of our 12 jackups were contracted and operated during the period, one of which was contracted and operated for the full period. Operating costs within the period increased due to: (i) the five floaters that were acquired in the Pacific Drilling Merger, (ii) the Noble Hans Duel for contract commencement in early April, including repairs subsequent to contract commencement, and (iii) the Noble Lloyd Noble’s shipyard projects for its contract in Norway, which commenced in late October. Operating costs within the period decreased due to the sale of four jackups operating in Saudi Arabia in November 2021.

During the period from January 1 through February 5, 2021, contract drilling services costs totaled $47.0 million. Reduced operating costs in the period was a result of rigs stacked during the entire period including the Noble Clyde Boudreaux, Noble Houston Colbert, Noble Hans Deul and Noble Tom Prosser.

During the year ended December 31, 2020, contract drilling services costs totaled $567.5 million. Operating costs for this period included costs related to 15 rigs which were contracted and operating the majority of the period. In addition, the period also included costs related to the jackup Noble Joe Beall sold in the first quarter of 2020 and five floaters that were stacked and ultimately retired and sold in the fourth quarter of 2020, including the Noble Bully I, Noble Bully II, Noble Danny Adkins, Noble Jim Day, and Noble Paul Romano. The Noble Tom Prosser and Noble Tom Madden were placed on special standby rates during this period due to the effects of the COVID-19 pandemic. The Noble Hans Duel and Noble Houston Colbert were warm stacked for the majority of the period, contributing to a reduction in costs.

Depreciation and Amortization. Depreciation and amortization totaled $89.5 million, $20.6 million, and $374.1 million during the period from February 6 through December 31, 2021, the period from January 1 through February 5, 2021 and the year ended December 31, 2020, respectively. Depreciation during February 6 through December 31, 2021 was impacted by the fair value remeasurement of our rigs as a result of the implementation of fresh start accounting on the Effective Date and has increased due to the rigs acquired from the Pacific Drilling Merger. Depreciation during the year ended December 31, 2020 declined due to impairments of assets recognized during the first quarter of 2020.

Loss on Impairments. We recorded a loss on impairment of $3.9 billion for the year ended December 31, 2020. We impaired the carrying value to estimated fair value for seven floaters and nine jackups and certain capital spare equipment during 2020. For additional information, see “Note 7— Loss on Impairment” to the Audited Financial Statements included elsewhere in this prospectus.

General and Administrative Expenses. General and administrative expenses totaled $62.5 million, $5.7 million and $121.2 million during the period from February 6 through December 31, 2021, the period from

 

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January 1 through February 5, 2021 and the year ended December 31, 2020, respectively. The year ended December 31, 2020 included $54.0 million of charges related to litigation that has been settled.

Pre-Petition Charges. Noble incurred $14.4 million of pre-petition charges during the year ended December 31, 2020. These costs relate to attorneys’ and financial advisors’ fees and other professional fees incurred in connection with the Chapter 11 Cases, prior to the Petition Date.

Merger and Integration Costs. Noble incurred $24.8 million of merger and integration costs in connection with the Pacific Drilling Merger and proposed Business Combination with Maersk Drilling during the period from February 6 through December 31, 2021. Finco incurred $8.3 million of merger and integration costs in connection with the Pacific Drilling Merger during the period from February 6 through December 31, 2021. For additional information, see “Note 4—Acquisitions and Divestitures” to the Audited Financial Statements included elsewhere in this prospectus.

Gain on Sale of Operating Assets, Net. Noble recorded a gain of $185.9 million resulting from the sale of rigs to ADES during the period from February 6 through December 31, 2021. Finco recorded a gain of $187.5 million resulting from the sale of rigs to ADES during the period from February 6 through December 31, 2021. The closing of the sale occurred in November 2021, and the Company recognized a gain, net of transaction costs, in the fourth quarter of 2021 associated with the disposal of these assets. Transaction costs included broker fees, statutory termination benefits and professional fees. For additional information, see “Note 4—Acquisitions and Divestitures” to the Audited Financial Statements included elsewhere in this prospectus.

Hurricane Losses and Recoveries, Net. Noble incurred $30.9 million of costs and received recoveries of $7.5 million from our insurance in connection to damages sustained from Hurricane Ida during the period from February 6 through December 31, 2021. We have incurred $25.2 million in charges related to equipment recovery efforts and damage assessment, and a write-off of assets of $5.4 million as a result of the damage assessment. For additional information, see “Note 6—Property and Equipment” to the Audited Financial Statements included elsewhere in this prospectus.

Other Income and Expenses

Reorganization Items, Net. Noble incurred a net gain of $252.1 million for reorganization items during the period from January 1 through February 5, 2021. Finco incurred a net gain of $195.4 million for reorganization items during the period from January 1 through February 5, 2021. The gain was primarily the result of gains on the settlement of Liabilities subject to compromise exceeding other net reorganization charges and net charges related to fresh start accounting. Noble incurred net charges of $23.9 million for reorganization items during the year ended December 31, 2020. Finco incurred net charges of $50.8 million for reorganization items during the year ended December 31, 2020. These costs relate to attorneys’ and financial advisors’ fees, write-off of deferred financing costs and debt discounts, revisions of estimated claims, adjustments to legal contingencies and other professional fees incurred in connection with the Chapter 11 Cases.

Interest Expense. Interest expense totaled $31.7 million, $0.2 million and $164.7 million during the period from February 6 through December 31, 2021, the period from January 1 through February 5, 2021 and the year ended December 31, 2020, respectively. The Predecessor period of 2021 and 2020 included reduced expenses due to the Bankruptcy Court order of a stay on all interest expense during the pendency of the Chapter 11 Cases. The Successor period of 2021 includes interest expense on our newly issued Second Lien Notes as well as borrowings under our Revolving Credit Facility, slightly offset by capitalized interest of $2.0 million. For additional information, see “Note 8—Debt” to the Audited Financial Statements included elsewhere in this prospectus.

Gain on Bargain Purchase. Noble recognized a $62.3 million gain on the bargain purchase of Pacific Drilling during the period from February 6 through December 31, 2021. For additional information, see

 

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“Note 4—Acquisitions and Divestitures” to the Audited Financial Statements included elsewhere in this prospectus.

Income Tax Provision (Benefit). We recorded an income tax expense of $0.4 million and $3.4 million, and an income tax benefit of $260.4 million during the period from February 6 through December 31, 2021, the period from January 1 through February 5, 2021 and the year ended December 31, 2020, respectively.

During the period from February 6, 2021 to December 31, 2021, our tax provision included tax benefits of $24.2 million related to US and non-US reserve releases, $12.6 million related to a US tax refund, $22.8 million related to deferred tax assets previously not recognized, $1.9 million related to recognition of a non-US refund claim and $1.2 million related primarily to deferred tax adjustments. Such tax benefits were offset by tax expenses of $21.2 million related to various recurring items primarily comprised of Guyana withholding tax on gross revenue and $42.0 million related to non-US tax reserves.

During the period ended on February 5, 2021, our income tax provision included a tax benefit of $1.7 million related to non-US reserve release and tax expense of $2.5 million related to fresh start and reorganization adjustments, and other recurring tax expenses of approximately $2.6 million.

During the year ended December 31, 2020, our tax benefit included the tax effect from asset impairments of $99.7 million, the tax impact of the application of the CARES Act of $39 million, a non-US reserve release due to a statute expiration of $4.6 million, a reduction of US tax reserves of $111.9 million, and the tax benefits of an internal restructuring net of resulting adjustment to the valuation allowance of $17.9 million and other recurring tax benefits of approximately $47.3 million. These tax benefits were partially offset by a 2019 US return-to-provision adjustment and resulting adjustment to the valuation allowance of $21.2 million, an increase in UK valuation allowance of $31.1 million, and an increase in non-US tax reserves of $7.8 million.

Results for the Year Ended December 31, 2020 and the Year Ended December 31, 2019

Information related to a comparison of our results of operations for our fiscal year ended December 31, 2020 compared to our fiscal year ended December 31, 2019 is included in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the fiscal year ended December 31, 2020, filed with the SEC on March 12, 2021.

Liquidity and Capital Resources

As a result of the financial restructuring through the Chapter 11 Cases, Noble emerged with a new $675.0 million Revolving Credit Facility and $216.0 million of Notes. At emergence, Legacy Noble’s ordinary shares were cancelled and Ordinary Shares were issued to Legacy Noble’s former bondholders. Certain former bondholders and former equity holders of Legacy Noble were also issued warrants to purchase shares of Noble Parent.

Post-emergence Debt

Senior Secured Revolving Credit Facility

On the Effective Date, Finco and Noble International Finance Company (“NIFCO”) entered into a senior secured revolving credit agreement (the “Revolving Credit Agreement”) providing for a $675.0 million senior secured revolving credit facility (with a $67.5 million sublimit for the issuance of letters of credit thereunder) (the “Revolving Credit Facility”) and cancelled all debt that existed immediately prior to the Effective Date. The Revolving Credit Facility matures on July 31, 2025. Subject to the satisfaction of certain conditions, Finco may from time to time designate one or more of Finco’s other wholly-owned subsidiaries as additional borrowers under the Revolving Credit Agreement (collectively with Finco and NIFCO, the “Borrowers”). As of the

 

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Effective Date, $177.5 million of loans were outstanding, and $8.8 million of letters of credit were issued, under the Revolving Credit Facility. As of December 31, 2021, we had no loans outstanding and $8.8 million of letters of credit issued under the Revolving Credit Facility and an additional $6.3 million in letters of credit and surety bonds issued under bilateral arrangements.

All obligations of the Borrowers under the Revolving Credit Agreement, certain cash management obligations and certain swap obligations are unconditionally guaranteed, on a joint and several basis, by Finco and certain of its direct and indirect subsidiaries (collectively with the Borrowers, the “Credit Parties”), including a guarantee by each Borrower of the obligations of each other Borrower under the Revolving Credit Agreement. All such obligations, including the guarantees of the Revolving Credit Facility, are secured by senior priority liens on substantially all assets of, and the equity interests in, each Credit Party, subject to certain exceptions and limitations described in the Revolving Credit Agreement. Neither Pacific Drilling nor any of its current subsidiaries is a subsidiary guarantor of the Revolving Credit Facility, and none of their assets secure the Revolving Credit Facility. In addition, none of the Maersk Drilling assets will secure the Revolving Credit Facility upon the closing of the Business Combination.

The loans outstanding under the Revolving Credit Facility bear interest at a rate per annum equal to the applicable margin plus, at Finco’s option, either: (i) the reserve-adjusted LIBOR or (ii) a base rate, determined as the greatest of (x) the prime loan rate as published in the Wall Street Journal, (y) the federal funds effective rate plus 1/2 of 1% and (z) the reserve-adjusted one-month LIBOR plus 1%. The applicable margin is initially 4.75% per annum for LIBOR loans and 3.75% per annum for base rate loans and will be increased by 50 basis points after July 31, 2024, and may be increased by an additional 50 basis points under certain conditions described in the Revolving Credit Agreement.

The Borrowers are required to pay customary quarterly commitment fees and letter of credit and fronting fees.

Availability of borrowings under the Revolving Credit Agreement is subject to the satisfaction of certain conditions, including restrictions on borrowings if, after giving effect to any such borrowings and the application of the proceeds thereof, (i) the aggregate amount of Available Cash (as defined in the Revolving Credit Agreement) would exceed $100.0 million, (ii) the Consolidated First Lien Net Leverage Ratio (as defined in the Revolving Credit Agreement) would be greater than 5.50 to 1.00 and the aggregate principal amount outstanding under the Revolving Credit Facility would exceed $610.0 million, or (iii) the Asset Coverage Ratio (as described below) would be less than 2.00 to 1.00.

Mandatory prepayments and, under certain circumstances, commitment reductions are required under the Revolving Credit Facility in connection with (i) certain asset sales, asset swaps and events of loss (subject to reinvestment rights if no event of default exists) and (ii) certain debt issuances. Available Cash in excess of $150.0 million is also required to be applied periodically to prepay loans (without a commitment reduction). The loans under the Revolving Credit Facility may be voluntarily prepaid, and the commitments thereunder voluntarily terminated or reduced, by the Borrowers at any time without premium or penalty, other than customary breakage costs.

The Revolving Credit Agreement obligates Finco and its restricted subsidiaries to comply with the following financial maintenance covenants:

 

  

as of December 31, 2021, Adjusted EBITDA (as defined in the Revolving Credit Agreement) is not permitted to be lower than $25.0 million for the four fiscal quarter periods ending on December 31, 2021;

 

  

as of the last day of each fiscal quarter ending on or after March 31, 2022, the ratio of Adjusted EBITDA to Cash Interest Expense (as defined in the Revolving Credit Agreement) is not permitted to be less than (i) 2.00 to 1.00 for each four fiscal quarter period ending on or after March 31, 2022 until June 30, 2024, and (ii) 2.25 to 1.00 for each four fiscal quarter period ending thereafter; and

 

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for each fiscal quarter ending on or after June 30, 2021, the ratio of (i) Asset Coverage Aggregate Rig Value (as defined in the Revolving Credit Agreement) to (ii) the aggregate principal amount of loans and letters of credit outstanding under the Revolving Credit Facility (the “Asset Coverage Ratio”) as of the last day of any such fiscal quarter is not permitted to be less than 2.00 to 1.00.

The Revolving Credit Facility contains affirmative and negative covenants, representations and warranties and events of default that the Company considers customary for facilities of this type.

Notes Indenture

On the Effective Date, pursuant to the Backstop Commitment Agreement and in accordance with the Plan, Noble Parent and Finco consummated the Rights Offering of Notes and associated Ordinary Shares at an aggregate subscription price of $200 million. On the Effective Date, Finco issued an aggregate principal amount of $216 million of Notes, which includes the aggregate subscription price of $200 million plus a backstop fee of $16 million which was paid in kind. For additional information regarding the Notes, see “Description of the Notes.”

Sources and Uses of Cash

Our principal sources of capital in 2021 were cash generated from operating activities and funding from our Revolving Credit Facility and Notes. Cash on hand during 2021 was primarily used for the following:

 

  

normal recurring operating expenses;

 

  

fees and expenses related to the Chapter 11 Cases; and

 

  

capital expenditures.

Our currently anticipated cash flow needs, both in the short-term (fiscal year 2022) and long-term (beyond fiscal year 2022), may include the following:

 

  

normal recurring operating expenses;

 

  

planned and discretionary capital expenditures;

 

  

repurchase, redemptions or repayments of debt and interest; and

 

  

certain contractual cash obligations and commitments.

We may, from time to time, redeem, repurchase or otherwise acquire our outstanding Notes through open market purchases, tender offers or pursuant to the terms of such securities.

We currently expect to fund our cash flow needs with cash generated by our operations, cash on hand, proceeds from sales of assets or borrowings under our Revolving Credit Facility and we believe this will provide us with sufficient ability to fund our cash flow needs over the next 12 months. Subject to market conditions and other factors, we may also issue equity or long-term debt securities to fund our cash flow needs and for other purposes.

Net cash provided by operating activities was $51.6 million during the period from February 6 through December 31, 2021, net cash used in operating activities was $45.4 million for the period from January 1 through February 5, 2021 and net cash provided by operating activities was $273.2 million for the year ended December 31, 2020. The Successor and prior year Predecessor periods benefited from a cash inflow from operating assets and liabilities, while the Predecessor had a cash outflow from operating assets and liabilities. We had working capital of $207.3 million at December 31, 2021 and $383.9 million at December 31, 2020.

 

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Net cash provided by investing activities was $207.9 million during the period from February 6 through December 31, 2021 and net cash used in investing activities was $14.4 million during the period from January 1 through February 5, 2021 and $121.5 million during the year ended December 31, 2020. The Successor period includes proceeds from the sale of the Noble Roger Lewis, Noble Scott Marks, Noble Joe Knight, and Noble Johnny Whitstine to ADES in November 2021, cash acquired from the Pacific Drilling Merger and proceeds from the sale of the Pacific Bora and Pacific Mistral in late June 2021. The Predecessor and Successor periods include shipyard work on the Noble Lloyd Noble and the managed pressure drilling upgrade on the Noble Don Taylor and Noble Tom Madden. The year ended December 31, 2020 also included proceeds from the sale of six rigs.

Net cash used in financing activities was $176.8 million during the period from February 6 through December 31, 2021 and $191.2 million during the period from January 1 through February 5, 2021 and net cash provided by financing activities was $107.4 million for the year ended December 31, 2020. The 2021 Predecessor period included the repayment of the 2017 Credit Facility, issuances of the Notes and borrowings on the Revolving Credit Facility. The Successor period includes net repayments on the Revolving Credit Facility, resulting in no loans outstanding under the facility as of December 31, 2021. The year ended December 31, 2020 included net borrowings on the 2017 Credit Facility and the early repayment of the 2018 Seller Loan and the 2019 Seller Loan. See “Note 8—Debt” to the Audited Financial Statements included elsewhere in this prospectus.

At December 31, 2021, we had a total contract drilling services backlog of approximately $1.2 billion, which includes a commitment of 58 percent of available days for 2022. For additional information regarding our backlog, see “—Contract Drilling Services Backlog.”

Capital Expenditures

Capital expenditures totaled $159.9 million, $10.3 million, $148.2 million and $306.4 million during the period from February 6 through December 31, 2021, the period from January 1 through February 5, 2021, and the years ended December 31, 2020 and 2019, respectively.

Capital expenditures during the period from February 6 through December 31, 2021 consisted of the following:

 

  

$65.0 million for sustaining capital;

 

  

$70.1 million in major projects, including subsea and other related projects;

 

  

$2.0 million for capitalized interest; and

 

  

$22.8 million for rebillable capital and contract modifications.

Capital expenditures during the period from January 1 through February 5, 2021 consisted of the following:

 

  

$1.5 million for sustaining capital;

 

  

$2.1 million in major projects, including subsea and other related projects; and

 

  

$6.7 million for rebillable capital and contract modifications.

Our total capital expenditure estimate for 2022 is expected to range between $155.0 million and $170.0 million, of which approximately $100.0 million to $115.0 million is currently anticipated to be spent for sustaining capital, and approximately $25.0 million is anticipated to be reimbursed by our customers. Our current capital expenditure estimates are not inclusive of any potential merger capital outlay.

From time to time we consider possible projects that would require expenditures that are not included in our capital budget, and such unbudgeted expenditures could be significant. In addition, while liquidity and preservation of capital remains our top priority, we will continue to evaluate acquisitions of drilling units from time to time.

 

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Share Capital

Pursuant to the Amended and Restated Memorandum of Association of Noble Parent, the share capital of Noble Parent is $6,000 divided into 500,000,000 ordinary shares of a par value of $0.00001 each and 100,000,000 shares of a par value of $0.00001, each of such class or classes having the rights as the Board may determine from time to time. Pursuant to the Memorandum of Association of Finco, the share capital of Finco is $55,000,000 divided into 400,000,000 shares of a par value of $0.10 each and 15,000,000 preferred shares of a par value of $1.00 each.

In accordance with the Plan, all agreements, instruments and other documents evidencing, relating to or otherwise connected with any of Legacy Noble’s equity interests outstanding prior to the Effective Date, including all equity-based awards, were cancelled and all such equity interests have no further force or effect after the Effective Date. Pursuant to the Plan, the holders of Legacy Noble’s ordinary shares, par value $0.01 per share, outstanding prior to the Effective Date received their pro rata share of the Tranche 3 Warrants to acquire Ordinary Shares.

The payment of future dividends by Noble Parent will depend on our results of operations, financial condition, cash requirements, future business prospects, contractual and indenture restrictions and other factors deemed relevant by the Board; however, at this time, Noble Parent does not expect to pay any dividends in the foreseeable future.

 

Summary of Contractual Cash Obligations and Commitments

We have $75.0 million of long-term tax reserves for uncertain tax positions, including interest and penalties, which are included in “Other liabilities” due to the difficulty in making reasonably reliable estimates of the timing of cash settlements to taxing authorities. See “Note 13—Income Taxes” to the Audited Financial Statements included elsewhere in this prospectus.

At December 31, 2021, no long-term debt will be due in the next twelve months and $216.0 million will be due subsequent to 2022. See “Note 8—Debt” to the Audited Financial Statements included elsewhere in this prospectus.

At December 31, 2021, $12.2 million of pension obligations will be due in the next twelve months and the remainder of $128.2 million will be due subsequent to 2022. See “Note 14—Employee Benefit Plans” to the Audited Financial Statements included elsewhere in this prospectus.

For a description of our operating lease obligations, see “Note 12—Leases” to the Audited Financial Statements included elsewhere in this prospectus.

At December 31, 2021, we had other commitments that we are contractually obligated to fulfill with cash if the obligations are called. These obligations include letters of credit that guarantee our performance as it relates to our drilling contracts, tax and other obligations in various jurisdictions. These letters of credit obligations are not normally called, as we typically comply with the underlying performance requirement. At December 31, 2021, $9.4 million letters of credit and commercial commitments will be due in the next twelve months and the remainder of $5.7 million will be due subsequent to 2022.

Guarantees of Registered Securities

As described herein, the Notes issued by Finco are fully and unconditionally guaranteed, jointly and severally, on a senior secured second-priority basis, by the direct and indirect subsidiaries of Finco that are Credit Parties under the Revolving Credit Facility (the “Guarantors”). The guarantees are unconditional, irrevocable, joint and several senior obligations of each Guarantor and rank equally in right of payment with all future senior indebtedness of such Guarantor and effectively senior to all of such Guarantor’s unsecured senior indebtedness.

 

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The Notes and such guarantees are secured by second priority liens on the collateral securing the obligations under the Revolving Credit Facility, including, among other things, (i) a pledge of the equity interests in Finco, (ii) pledges of the equity interests in the Guarantors and (iii) a lien on substantially all of the assets of Finco and the Guarantors (including the equity interests in substantially all of the other direct subsidiaries of Finco and the Guarantors), in each case, subject to certain exceptions and limitations (collectively, the “Collateral”). The Collateral also includes mortgages on certain rigs owned by the Guarantors. Neither Pacific Drilling nor any of its current subsidiaries is a subsidiary guarantor of the Revolving Credit Facility or the Notes. The Collateral does not include any assets of, or equity interests in, Pacific Drilling or any of its current subsidiaries. In addition, none of the Maersk Drilling assets will secure the Revolving Credit Facility or the Notes upon the closing of the Business Combination, and the Collateral does not include any assets of Maersk Drilling. We are providing the following information about the Guarantors and the Collateral in compliance with Rules 13-01 and 13-02 of Regulation S-X.

Note Guarantees

The guarantees by the Guarantors are unconditional, irrevocable, joint and several senior obligations of each Guarantor and rank equally in right of payment with all future senior indebtedness of such Guarantor and effectively senior to all of such Guarantor’s unsecured senior indebtedness. The guarantees rank senior in right of payment to any existing and future subordinated obligations of such Guarantor and are effectively junior to any obligations of such Guarantor that are secured by senior liens on the Collateral or secured by assets which do not constitute Collateral. Under the indenture governing the Notes, a Guarantor may be released and relieved of its obligations under its guarantee under certain circumstances, including: (1) upon Finco’s exercise of legal defeasance in accordance with the relevant provisions of the indenture governing the Notes, (2) in the event of any sale or other disposition of all of the capital stock of any Guarantor in compliance with the provisions of the indenture governing the Notes, (3) upon the dissolution or liquidation of a Guarantor, (3) with the requisite consent of the noteholders, (4) if such Guarantor is properly designated as an unrestricted subsidiary in accordance with the indenture governing the Notes, (5) upon the release or discharge of the Guarantor’s obligations under its guarantee or (6) with respect to certain future immaterial guarantors, upon a written notice from Finco to the trustee for the Notes.

Finco is a holding company with no significant operations or material assets other than the direct and indirect equity interests it holds in the Guarantors and other non-guarantor subsidiaries. Finco conducts its operations primarily through its subsidiaries. As a result, its ability to pay principal and interest on the Notes is dependent on the cash flow generated by its subsidiaries and their ability to make such cash available to Finco by dividend or otherwise. The Guarantors’ earnings will depend on their financial and operating performance, which will be affected by general economic, industry, financial, competitive, operating, legislative, regulatory and other factors beyond Finco’s control. Any payments of dividends, distributions, loans or advances to Finco by the Guarantors could also be subject to restrictions on dividends under applicable local law in the jurisdictions in which the Guarantors operate. In the event that Finco does not receive distributions from the Guarantors, or to the extent that the earnings from, or other available assets of, the Guarantors are insufficient, Finco may be unable to make payments on the Notes.

Pledged Securities of Affiliates

Pursuant to the terms of the Notes collateral documents, the collateral agent under the indenture governing the Notes may pursue remedies, or pursue foreclosure proceedings on the Collateral (including the equity of the Guarantors and other direct subsidiaries of Finco and the Guarantors), following an event of default under the indenture governing the Notes. The collateral agent’s ability to exercise such remedies is limited by the intercreditor agreement for so long as any priority lien debt is outstanding.

The pledged equity of the Guarantors constitutes substantially all of the securities of our affiliates which have been pledged to secure the obligations under the Notes. The value of the pledged equity is subject to

 

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fluctuations based on factors that include, among other things, general economic conditions and the ability to realize on the collateral as part of a going concern and in an orderly fashion to available and willing buyers and not under distressed circumstances. There is no trading market for the pledged equity interests.

Under the terms of the documents governing the Notes (the “Notes Documents”), Finco and the Guarantors will be entitled to the release of the Collateral from the liens securing the Notes under one or more circumstances, including (1) to the extent required by or pursuant to the terms of the Notes Documents; (2) to the extent that proceeds continue to constitute Collateral, in the event that Collateral is sold, transferred, disbursed or otherwise disposed of to third parties; or (3) as otherwise provided in the Notes Documents, including the release of the priority lien on such Collateral. Upon the release of any subsidiary from its guarantee, if any, in accordance with the terms of the indenture governing the Notes, the lien on any pledged equity interests issued by such Guarantor and on any assets of such Guarantor will automatically terminate.

Guarantor Summarized Financial Information

The summarized financial information below reflects the combined accounts of the Guarantors and the non-consolidated accounts of Finco (collectively, the “Obligors”), for the dates and periods indicated. The financial information is presented on a combined basis and intercompany balances and transactions between entities in the Obligor group have been eliminated.

Summarized Balance Sheet Information

 

   Successor   Predecessor 
   December 31, 2021   December 31, 2020 

Current assets

  $333,127  $461,587 

Amounts due from non-guarantor subsidiaries, current

   5,150,694   5,552,158 

Noncurrent assets

   1,214,111   3,590,865 

Amounts due from non-guarantor subsidiaries, noncurrent

   646,778   1,045,237 

Current liabilities

   189,177   159,601 

Amounts due from non-guarantor subsidiaries, current

   5,254,540   5,532,634 

Noncurrent liabilities

   281,218   120,033 

Amounts due from non-guarantor subsidiaries, noncurrent

   168,873   480,460 

Summarized Statement of Operations Information

 

   Successor (1)
Obligors
  Predecessor (2)
Obligors
 
   Period From
February 6, 2021
through
December 31, 2021
  Period From
January 1, 2021
through
February 5, 2021
   Year
Ended
December 31,
2020
 

Operating revenues

  $615,432 $70,584   $895,295 

Operating costs and expenses

   480,367  63,255    4,320,475 

Income (loss) from continuing operations before income taxes

   111,251   (2,303,528   (3,414,898

Net income (loss)

   99,011   (2,318,932   (3,468,407

 

(1)

Includes operating revenue of $31.3 million, operating costs and expenses of $17.1 million and other expense of $26.3 million attributable to transactions with non-guarantor subsidiaries for the period from February 6, 2021 through December 31, 2021.

 

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(2)

Includes operating revenue of $3.8 million, operating costs and expenses of $1.1 million and other expense of $(1.2) million attributable to transactions with non-guarantor subsidiaries for the period from January 1, 2021 through February 5, 2021. Includes operating revenue of $88.2 million, operating costs and expenses of $23.7 million and other expense of $3.3 million attributable to transactions with non-guarantor subsidiaries for the year ended December 31, 2020.

Environmental Matters

We are subject to numerous international, federal, state and local laws and regulations relating to the protection of the environment and of human health and safety. For a discussion of the most significant of these laws and regulations, see “Business—Governmental Regulations and Environmental Matters.”

Continuing political and social attention to the issue of global climate change has resulted in a broad range of proposed or promulgated laws focusing on greenhouse gas reduction. These proposed or promulgated laws apply or could apply in countries where we have interests or may have interests in the future. Laws in this field continue to evolve, and while it is not possible to accurately estimate either a timetable for implementation or our future compliance costs relating to implementation, such laws, if enacted, could have a material impact on our results of operations and financial condition. Climate change could also increase the frequency and severity of adverse weather conditions, including hurricanes, typhoons, cyclones, winter storms and rough seas. If such effects were to occur, they could have an adverse impact on our operations. For a discussion of climate change, see “Business—Governmental Regulations and Environmental Matters—Climate Change.”

In addition, increasing social attention to ESG matters and climate change has resulted in demands for action related to climate change and energy rebalancing matters, such as promoting the use of substitutes to fossil fuel products, encouraging the divestment of fossil fuel equities, and pressuring lenders and other financial services companies to limit or curtail activities with fossil fuel companies. Initiatives to incentivize a shift away from fossil fuels could reduce demand for hydrocarbons, thereby reducing demand for our services and causing a material adverse effect on our earnings, cash flows and financial condition. For further discussion of these risks, see “Risk Factors—Regulatory and Legal Risks—Increasing attention to environmental, social and governance matters and climate change may impact our business and financial results.”

Critical Accounting Policies

We prepare our consolidated financial statements in accordance with U.S. GAAP, which require us to make estimates that affect the reported amounts of assets, liabilities, revenues, expenses and related disclosures of contingent assets and liabilities. We base our estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying amounts of assets and liabilities that are not readily apparent from other sources. Actual results may differ from our estimates and assumptions and any such differences could be material to our consolidated financial statements. The following accounting policies involve critical accounting estimates because they are particularly dependent on estimates and assumptions made by Noble about matters that are inherently uncertain.

Impairment

We evaluate our property and equipment and intangible assets for impairment whenever there are changes in facts that suggest that the value of the asset is not recoverable. An impairment loss is recognized when and to the extent that an asset’s carrying value exceeds its estimated fair value. To the extent actual results do not meet our estimated assumptions for a given rig, piece of equipment or intangible customer contract, we may take an impairment loss in the future. In determining the fair value of the assets, we make significant assumptions and estimates regarding future market conditions. Typical assumptions used in our estimate include current market conditions, timing of future contract awards and expected operating dayrates, operating costs, utilization rates, discount rates, capital expenditures, market values, weighting of market values, reactivation costs, estimated economic useful lives and marketability of a unit.

 

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During the years ended December 31, 2020 and 2019, we recognized non-cash, before-tax impairment charges of $3.9 billion and $615.3 million, respectively, related to certain rigs and related capital spares. These impairments were driven by factors such as customer suspensions of drilling programs, contract cancellations, a further reduction in the number of new contract opportunities, capital spare equipment obsolescence, and our belief that a drilling unit is no longer marketable and is unlikely to return to service.

Impairment assessment inherently involves management judgments as to assumptions about expected future cash flows and the impact of market conditions on those assumptions. Due to the many variables inherent in this estimation, differences in assumptions may have a material effect on the results of our impairment analysis.

Income Taxes

We estimate income taxes and file tax returns in each of the taxing jurisdictions in which we operate and are required to file a tax return. At the end of each year, an estimate for income taxes is recorded in the financial statements. Tax returns are generally filed in the subsequent year. A reconciliation of the estimate to the final tax return is done at that time, which will result in changes to the original estimate. We believe that our tax return positions are appropriately supported, but tax authorities can challenge certain of our tax positions.

We currently operate, and have in the past operated, in a number of countries throughout the world and our tax returns filed in those jurisdictions are subject to review and examination by tax authorities within those jurisdictions. We recognize uncertain tax positions that we believe have a greater than 50 percent likelihood of being sustained upon challenge by a tax authority. We cannot predict or provide assurance as to the ultimate outcome of any existing or future assessments. A change in judgment related to the expected ultimate resolution of uncertain tax positions will be recognized in earnings in the quarter of such change. We believe that our reserve for uncertain tax positions, including related interest and penalties, is adequate. As of December 31, 2021, the Company had $75.0 million of long-term tax reserves for unrecognized tax benefits, including interest and penalties, which are included in “Other liabilities”. The amounts ultimately paid upon resolution of audits could be materially different from the amounts previously included in our income tax expense and, therefore, could have a material impact on our tax provision, net income and cash flows.

Our gross deferred tax asset balance at year-end reflects the application of our income tax accounting policies and is based on management’s estimates, judgments and assumptions regarding realizability. If it is more likely than not that a portion of the deferred tax assets will not be realized in a future period, the deferred tax assets will be reduced by a valuation allowance based on management’s estimates. In evaluating our ability to recover our deferred tax assets, in full or in part, we consider all available positive and negative evidence, including our past operating results, and our forecast of future earnings, future taxable income and prudent and feasible tax planning strategies. The assumptions utilized in determining future taxable income require significant judgment. Although we believe our assumptions, judgments and estimates are reasonable, changes in tax laws or our interpretation of tax laws and the resolution of any tax audits could have a material impact our consolidated financial statements.

Insurance Reserves

We maintain various levels of self-insured retention for certain losses including property damage, loss of hire, employment practices liability, employers’ liability and general liability, among others. We accrue for property damage and loss of hire charges on a per event basis.

Employment practices liability claims are accrued based on actual claims during the year. Maritime employer’s liability claims are generally estimated using actuarial determinations. General liability claims are estimated by our internal claims department by evaluating the facts and circumstances of each claim (including incurred but not reported claims) and making estimates based upon historical experience with similar claims. The amount of our loss reserves for personal injury and protection claims is based on an analysis performed by a

 

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third-party actuary which uses our historical loss patterns and trends as well as industry data to estimate the unpaid loss and allocated loss adjustment expense. Claim severity experienced in each year, ranging from minor incidents to permanent disability or injuries requiring extensive medical care, is a key driver of the variability around our reserve estimates. These estimates are further subject to uncertainty because the ultimate disposition of claims incurred is subject to the outcome of events which have not yet transpired. Accordingly, we may be required to increase or decrease our reserve levels. At December 31, 2021 and 2020, loss reserves for personal injury and protection claims totaled $14.8 million and $30.9 million, respectively, and such amounts are included in “Other liabilities” and “Liabilities subject compromise” in the Consolidated Balance Sheets included elsewhere in this prospectus.

Pension Plans

Accounting for employee benefit plans involves numerous assumptions and estimates. Discount rate and expected return on plan assets are two critical assumptions in measuring the cost and benefit obligation of the Company’s pension plans, which we evaluate when the plans are re-measured. Other assumptions include the healthcare cost trend rate and employee demographic factors such as retirement patterns, mortality, turnover and rate of compensation increase.

The discount rate enables us to state expected future cash payments for benefits as a present value on the measurement date. A lower discount rate increases the present value of benefit obligations and increases pension expense. The discount rates used to calculate the net present value of future benefit obligations for our US plans is based on the average of current rates earned on long-term bonds that receive a Moody’s rating of “Aa” or better. We have determined that the timing and amount of expected cash outflows on our plans reasonably match this index. For our non-US plan, the discount rate used to calculate the net present value of future benefit obligations is determined by using a yield curve of high quality bond portfolios with an average maturity approximating that of the liabilities. A one percentage point decrease in the assumed discount rate would increase total pension expense for 2022 by approximately $1.3 million and would increase the projected benefit obligation at December 31, 2021 by approximately $51.8 million. A one percentage point increase in the assumed discount rate would increase total pension expense and decrease the projected benefit obligation by approximately $0.7 million and $41.1 million, respectively.

To determine the expected long-term rate of return on the plan assets, we consider the current level of expected returns on risk free investments (primarily government bonds), the historical level of risk premium associated with the other asset classes in which the portfolio is invested and the expectations for future returns of each asset class. The expected return for each asset class was then weighted based on the target asset allocation to develop the expected long-term rate of return on assets for the portfolio.

Quantitative and Qualitative Disclosures about Market Risk

Market risk is the potential for loss due to a change in the value of a financial instrument as a result of fluctuations currency exchange rates or equity prices, as further described below.

Interest Rate Risk

We are subject to market risk exposure related to changes in interest rates on borrowings under the Revolving Credit Facility. Interest on borrowings under our Revolving Credit Facility is at an agreed upon percentage point spread over LIBOR, or a base rate stated in the agreements. Borrowings under the Revolving Credit Facility bear interest at LIBOR plus an applicable margin, which is currently the maximum contractual rate of 4.25%. On March 5, 2021, the Financial Conduct Authority in the UK issued an announcement on the future cessation or loss of representativeness for LIBOR benchmark settings currently published by ICE Benchmark Administration. The announcement confirmed that LIBOR will either cease to be provided by any administrator or will no longer be representative after December 31, 2021 for all non-USD LIBOR reference

 

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rates, and for certain short-term USD LIBOR references rates, and after June 30, 2023 for other reference rates. While the Revolving Credit Facility contains hardwired “fallback” provisions providing for an alternative reference rate upon the occurrence of certain events related to the phase-out of LIBOR, the alternative reference rate plus any associated spread adjustment may result in interest rates higher than LIBOR. As a result, our interest expense could increase on our floating rate debt.

At December 31, 2021, we had no borrowings outstanding under the Revolving Credit Facility and $8.8 million of performance letters of credit.

We maintain certain debt instruments at a fixed rate whose fair value will fluctuate based on changes in market expectations for interest rates and perceptions of our credit risk. The fair value of our total debt was $236.8 million December 31, 2021.

Foreign Currency Risk

Although we are a Cayman Islands company, we define foreign currency as any non-US denominated currency. Our functional currency is the US Dollar. However, outside the United States, a portion of our expenses are incurred in local currencies. Therefore, when the US Dollar weakens (strengthens) in relation to the currencies of the countries in which we operate, our expenses reported in US Dollars will increase (decrease).

We are exposed to risks on future cash flows to the extent that local currency expenses exceed revenues denominated in local currency that are other than the functional currency. To help manage this potential risk, we periodically enter into derivative instruments to manage our exposure to fluctuations in currency exchange rates, and we may conduct hedging activities in future periods to mitigate such exposure. These contracts are primarily accounted for as cash flow hedges, with the effective portion of changes in the fair value of the hedge recorded on the Consolidated Balance Sheets included elsewhere in this prospectus and in “Accumulated other comprehensive income (loss)” (“AOCI”). Amounts recorded in AOCI are reclassified into earnings in the same period or periods that the hedged item is recognized in earnings. The ineffective portion of changes in the fair value of the hedged item is recorded directly to earnings. We have documented policies and procedures to monitor and control the use of derivative instruments. We do not engage in derivative transactions for speculative or trading purposes, nor are we a party to leveraged derivatives.

Several of our regional shorebases have a significant amount of their cash operating expenses payable in local currencies. To limit the potential risk of currency fluctuations, we periodically enter into forward contracts, which have historically settled monthly in the operations’ respective local currencies. All of these contracts had a maturity of less than 12 months. During the period from February 6 through December 31, 2021, the period from January 1 through February 5, 2021 and the year ended December 31, 2020, we did not enter into any forward contracts. During the period from February 6 through December 31, 2021, the period from January 1 through February 5, 2021 and the year ended December 31, 2020, we had no outstanding derivative contracts. Based on current projections, a 10% increase in the average exchange rates of all foreign currencies would hypothetically increase our future estimated operating expenses by approximately $8.5 million.

Market Risk

We have a US noncontributory defined benefit pension plan that covers certain salaried employees and a US noncontributory defined benefit pension plan that covers certain hourly employees, whose initial date of employment is prior to August 1, 2004 (collectively referred to as our “qualified US plans”). These plans are governed by the Noble Drilling Employees’ Retirement Trust. The benefits from these plans are based primarily on years of service and, for the salaried plan, employees’ compensation near retirement. These plans are designed to qualify under the Employee Retirement Income Security Act of 1974 (“ERISA”), and our funding policy is consistent with funding requirements of ERISA and other applicable laws and regulations. We make cash contributions, or utilize credits available to us, for the qualified US plans when required. The benefit amount that

 

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can be covered by the qualified US plans is limited under ERISA and the Code (as defined herein). Therefore, we maintain an unfunded, nonqualified excess benefit plan designed to maintain benefits for specified employees at the formula level in the qualified salary US plan. We refer to the qualified US plans and the excess benefit plan collectively as the “US plans.”

In addition to the US plans, Noble Drilling (Land Support) Limited, an indirect, wholly-owned subsidiary of Noble Parent, maintains a pension plan that covers all of its salaried, non-union employees, whose most recent date of employment is prior to April 1, 2014 (referred to as our “non-US plan”). Benefits are based on credited service and employees’ compensation, as defined by the non-US plan.

The Company’s pension plan assets are exposed to the market prices of debt and equity securities. Changes to the pension plan asset values can impact the Company’s pension expense, funded status and future minimum funding requirements. The Company aims to reduce risk through asset diversification and by investing in long duration fixed-income securities that have a duration similar to that of its pension liabilities. At December 31, 2021, the value of the investments in the pension funds was $305.3 million, and a hypothetical 10.0% percent decrease in the value of the investments in the fund would have reduced the value of the fund by approximately $30.5 million. A significant decline in the value of pension assets could require the Company to increase funding of its pension plans in future periods, which could adversely affect cash flows in those periods. In addition, a decline in the fair value of these plan assets, in the absence of additional cash contributions to the plans by the Company, could increase the amount of pension cost required to be recorded in future periods by the Company.

 

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BUSINESS

Overview

Noble is a leading offshore drilling contractor for the oil and gas industry. We provide contract drilling services to the international oil and gas industry with our global fleet of mobile offshore drilling units. We focus on a high-specification fleet of floating and jackup rigs and the deployment of our drilling rigs in oil and gas basins around the world. Noble and its predecessors have been engaged in the contract drilling of oil and gas wells since 1921.

On the Petition Date, Legacy Noble and certain of its subsidiaries, including Finco, filed the Chapter 11 Cases in the Bankruptcy Court. On September 4, 2020, the Debtors filed with the Bankruptcy Court the Plan, which was subsequently amended on October 8, 2020 and October 13, 2020 and modified on November 18, 2020, and the Disclosure Statement. On September 24, 2020, six additional subsidiaries of Legacy Noble filed the Chapter 11 Cases in the Bankruptcy Court. On November 20, 2020, the Bankruptcy Court entered an order confirming the Plan. In connection with the Chapter 11 Cases and the Plan, on and prior to the Effective Date, Legacy Noble and certain of its subsidiaries effectuated certain restructuring transactions, pursuant to which Legacy Noble formed Noble Parent as an indirect, wholly-owned subsidiary of Legacy Noble and transferred to Noble Parent substantially all of the subsidiaries and other assets of Legacy Noble. On the Effective Date, the Plan became effective in accordance with its terms, the Debtors emerged from the Chapter 11 Cases and Noble Parent became the new parent company. For additional information on the financial restructuring, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Executive Overview—Recent Events—Emergence from Chapter 11.” For a description of the events that occurred on the Effective Date, including the issuance of the Ordinary Shares, the Tranche 1 Warrants, the Tranche 2 Warrants and the Tranche 3 Warrants, see “Note 2—Chapter 11 Emergence” to the Audited Financial Statements included elsewhere in this prospectus. In accordance with the Plan, Legacy Noble and its remaining subsidiary will in due course be wound down and dissolved in accordance with applicable law. The Bankruptcy Court closed the Chapter 11 Cases with respect to all Debtors other than Legacy Noble, pending its wind down.

Finco was an indirect, wholly-owned subsidiary of Legacy Noble prior to the Effective Date and has been a direct, wholly-owned subsidiary of Noble Parent since the Effective Date. Noble Parent’s principal asset is all of the shares of Finco. Finco has no public equity outstanding. The consolidated financial statements of Noble Parent have been included in this registration statement because they include the accounts of Finco and Noble Parent conducts substantially all of its business through Finco and its subsidiaries.

Contract Drilling Services

We report our contract drilling operations as a single reportable segment, Contract Drilling Services, which reflects how we manage our business. The mobile offshore drilling units comprising our offshore rig fleet operate in a global market for contract drilling services and are often redeployed to different regions due to changing demands of our customers, which consist primarily of large, integrated, independent and government-owned or controlled oil and gas companies throughout the world.

We typically provide contract drilling services under an individual contract, on a dayrate basis. Although each contract’s final terms and conditions are the result of negotiations with our customers, many contracts are awarded through a competitive bidding process. Our drilling contracts may contain the following terms:

 

  

contract duration extending over a specific period of time or a period necessary to drill a defined number of wells;

 

  

payment of compensation to us (generally in US Dollars although some customers, typically national oil companies, require a part of the compensation to be paid in local currency) on a “daywork” basis, so that we receive a fixed amount for each day (“dayrate”) that the drilling unit is operating under contract

 

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(a lower rate or no compensation is payable during periods of equipment breakdown and repair or adverse weather or in the event operations are interrupted by other conditions, some of which may be beyond our control);

 

  

provisions permitting early termination of the contract by the customer (i) if the unit is lost or destroyed, (ii) if operations are suspended for a specified period of time due to breakdown of equipment or breach of contract or (iii) for convenience with the payment of contractually specified termination amounts;

 

  

provisions allowing the impacted party to terminate the contract if specified “force majeure” events beyond the contracting parties’ control occur for a defined period of time;

 

  

payment by us of the operating expenses of the drilling unit, including labor costs and the cost of incidental supplies;

 

  

provisions that allow us to recover our mobilization and demobilization costs associated with moving a drilling unit from one regional location to another which, under certain market conditions, may not allow us to receive full reimbursement of such costs;

 

  

provisions that allow us to recover certain cost increases from our customers in certain long-term contracts; and

 

  

provisions that require us to lower dayrates for documented cost decreases in certain long-term contracts.

During periods of depressed market conditions, such as the one we recently experienced for a number of years, our customers may attempt to renegotiate or repudiate their contracts with us although we seek to enforce our rights under our contracts. The renegotiations may include changes to key contract terms, such as pricing, termination and risk allocation.

For a discussion of our backlog of commitments for contract drilling services, please read “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Contract Drilling Services Backlog.”

Drilling Fleet

Noble is a leading offshore drilling contractor for the oil and gas industry. Noble owns and operates one of the most modern, versatile and technically advanced fleets of mobile offshore drilling units in the offshore drilling industry. Noble provides, through its subsidiaries, contract drilling services with a fleet of 19 offshore drilling units, consisting of 11 floaters and eight jackups at the date of this prospectus, focused largely on ultra-deepwater and high-specification drilling opportunities in both established and emerging regions worldwide. Each type of drilling rig is described further below. Several factors determine the type of unit most suitable for a particular job, the most significant of which include the water depth and the environment of the intended drilling location, whether the drilling is being done over a platform or other structure, and the intended well depth. At the date of this prospectus, our fleet was located in Africa, the Middle East, the North Sea, Oceania, South America and the US Gulf of Mexico. Our fleet consists of the following types of mobile offshore drilling units.

Floaters

A drillship is a type of floating drilling unit that is based on the ship-based hull of the vessel and equipped with modern drilling equipment that gives it the capability of easily transitioning from various worldwide locations and carrying high capacities of equipment while being able to drill ultra-deepwater oil and gas wells in up to 12,000 feet of water. Drillships can stay directly over the drilling location without anchors in open seas using a dynamic positioning system (“DPS”), which coordinates position references from satellite signals and acoustic seabed transponders with the drillship’s six to eight thrusters to keep the ship directly over the well that

 

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is being drilled. Drillships are selected to drill oil and gas wells for programs that require a high level of simultaneous operations, where drilling loads are expected to be high, or where there are occurrences of high ocean currents, where the drillship’s hull shape is the most efficient. Noble’s fleet consists of 11 drillships capable of water depths from 10,000 feet to 12,000 feet.

Semisubmersible drilling units are designed as a floating drilling platform incorporating one or several pontoon hulls, which are submerged in the water to lower the center of gravity and make this type of drilling unit exceptionally stable in the open sea. Semisubmersible drilling units are generally categorized in terms of the water depth in which they are capable of operating, from the mid-water range of 300 feet to 4,000 feet, the deepwater range of 4,000 feet to 7,500 feet, to the ultra-deepwater range of 7,500 feet to 12,000 feet as well as by their generation, or date of construction. This type of drilling unit typically exhibits excellent stability characteristics, providing a stable platform for drilling in even rough seas. Semisubmersible drilling units hold their position over the drilling location using either an anchored mooring system or a DPS and may be self-propelled.

Jackups

Jackup drilling units are designed to provide drilling solutions in depths ranging from less than 100 feet to as deep as 500 feet of water with drilling hookloads up to 2,500,000 pounds. Jackup rigs can be used in open water exploration locations, as well as over fixed, bottom-supported platforms. A jackup drilling unit is a towed mobile vessel consisting of a floating hull equipped with three or four legs, which are lowered to the seabed at the drilling location. The hull is then elevated out of the water by the jacking system using the legs to support weight of the hull and drilling equipment against the seabed. Once the hull is elevated to the desired level, or jacked up, the drilling package can be extended out over an existing production platform or the open water location and drilling can commence. Noble’s fleet of eight jackups consists of high-specification units capable of drilling in up to 500 feet of water.

 

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The following table presents certain information concerning our offshore fleet at the date of this prospectus. We own and operate all of the units included in the table.

 

Name

 Make  Year Built
or Rebuilt (1)
  Water
Depth
Rating
(feet) (2)
  Drilling
Depth
Capacity
(feet)
  Location  Status (3) 

Floaters—Drillships—11

      

Noble Bob Douglas

  GustoMSC P10000   2013 N   12,000   40,000   Guyana   Active 

Noble Don Taylor

  GustoMSC P10000   2013 N   12,000   40,000   Guyana   Active 

Noble Faye Kozack

  
Samsung 120000
Double Hull
 
 
  2013 N   12,000   40,000   US Gulf of Mexico   Active 

Noble Gerry de Souza

  
Samsung 120000
Double Hull
 
 
  2011 N   12,000   40,000   Trinidad and Tobago   Active 

Noble Globetrotter I

  Globetrotter Class   2011 N   10,000   30,000   US Gulf of Mexico   Active 

Noble Globetrotter II

  Globetrotter Class   2013 N   10,000   30,000   US Gulf of Mexico   Active 

Noble Sam Croft

  GustoMSC P10000   2014 N   12,000   40,000   Guyana   Active 

Noble Stanley Lafosse

  
Samsung 120000
Double Hull
 
 
  2014 N   12,000   40,000   US Gulf of Mexico   Active 

Noble Tom Madden

  GustoMSC P10000   2014 N   12,000   40,000   Guyana   Active 

Pacific Meltem

  
Samsung 120000
Double Hull
 
 
  2014 N   12,000   40,000   Las Palmas   Stacked 

Pacific Scirocco

  
Samsung 120000
Double Hull
 
 
  2011 N   12,000   40,000   Las Palmas   Stacked 

Independent Leg Cantilevered Jackups—8

 

    

Noble Hans Deul (4)

  F&G JU-2000E   2008 N   400   30,000   UK   Active 

Noble Houston Colbert (4)

  F&G JU-3000N   2014 N   400   30,000   UK   Available 

Noble Lloyd Noble (4)

  
GustoMSC CJ70-
x150-ST

 
  2016 N   500   32,000   Norway   Active 

Noble Mick O’Brien (4)

  F&G JU-3000N   2013 N   400   30,000   Qatar   Active 

Noble Regina Allen (4)

  F&G JU-3000N   2013 N   400   30,000   Trinidad and Tobago   Active 

Noble Sam Hartley (4)

  F&G JU-3000N   2014 N   400   30,000   UK   Active 

Noble Sam Turner (4)

  F&G JU-3000N   2014 N   400   30,000   Denmark   Active 

Noble Tom Prosser (4)

  F&G JU-3000N   2014 N   400   30,000   Australia   Active 

 

(1)

Rigs designated with an “R” were modified, refurbished or otherwise upgraded in the year indicated by capital expenditures of an amount deemed material by management. Rigs designated with an “N” are newbuilds.

 

(2)

Rated water depth for drillships reflects the maximum water depth for which a floating rig has been designed for drilling operations.

 

(3)

Rigs listed as “active” are operating, preparing to operate or under contract; rigs listed as “available” are actively seeking contracts and may include those that are idle or warm stacked; rigs listed as “shipyard” are in a shipyard for construction, repair, refurbishment or upgrade; rigs listed as “stacked” are idle without a contract and have reduced or no crew and are not actively marketed in present market conditions.

 

(4)

Harsh environment capability.

Market

The offshore contract drilling industry is a highly competitive and cyclical business. Demand for offshore drilling services is driven by the offshore exploration and development programs of oil and gas operators, which in turn are influenced by many factors. Those factors include, but are not limited to, the price and price stability

 

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of oil and gas, the relative cost and carbon footprint of offshore resources within each operator’s broader energy portfolio, global macroeconomic conditions, world energy demand, the operator’s strategy toward renewable energy sources, environmental considerations and governmental policies.

In the provision of offshore contract drilling services, success in securing contracts is primarily governed by price, a rig’s availability, drilling capabilities and technical specifications and its safety performance record. Other factors include experience of the workforce, process efficiency, condition of equipment, operating integrity, reputation, industry standing and client relations.

Our business strategy focuses on a high-specification fleet of both floating and jackup rigs and the deployment of our drilling rigs in established and emerging offshore oil and gas basins around the world. We emphasize safe operations, environmental stewardship, social responsibility, and robust governance to sustain superior performance and maximize stakeholder value, achieved through the employment of our qualified and well-trained crews, the care of our surroundings and neighboring communities, a regimented management system, and a superior fleet. We also carefully manage rig operating costs through the implementation and continuous improvement of innovative systems and processes, which includes the use of data analytics and predictive maintenance technology.

We maintain a global operational presence and compete in many of the major offshore oil and gas basins worldwide. All our drilling rigs are mobile, and we may reposition our drilling rigs among regions for a variety of reasons, including in response to customer requirements. We compete in both the jackup and floating rig market segments, each of which may have different supply and demand dynamics at a given period in time or in different regions.

Since 2014, the offshore drilling industry has faced the challenging combination of a significant rig oversupply and an overall reduction in offshore development and exploration activity that has reduced global offshore rig demand. Industry conditions gradually improved in 2019, which was evidenced by increasing utilization and improving dayrates. However, in the first half of 2020, this gradual recovery was abruptly halted as oil prices experienced concurrent supply and demand shocks. The supply shock was driven by production disagreements among OPEC+ members that resulted in a sudden and a significant oversupply of oil, and the demand shock by the onset of the global COVID-19 pandemic that resulted in a meaningful reduction in global economic activity and produced significant uncertainty among our customers. However, by early 2021, oil prices returned to pre-pandemic levels and continued to rise throughout 2021. Concurrent with this oil price recovery, contracting activity improved as our customer base started to increase their capital budgets.

The global rig supply continues to come down from historic highs as Noble and other offshore drilling contractors retire less capable and idle assets. Concurrently, the incoming supply of newbuild offshore drilling rigs has diminished materially, with several newbuild rigs stranded in shipyards generally requiring dayrates in excess of current market rates in order to be economic to be brought into the global fleet.

Looking forward to 2022, we expect offshore drilling activity to increase as the global economy continues to improve. However, the market outlook in our business varies by geographical region and water depth. We are continually encouraged by the ongoing indications of recovery in the ultra-deepwater floater market in the US Gulf of Mexico, South America, and Africa. Harsh environment jackup markets show stable opportunities and remain an important portion of our business.

While we are cautiously optimistic that recent positive trends will continue, our industry continues to face uncertainties and is unlikely to return to activity levels experienced in historical cycle peaks. Energy rebalancing trends have accelerated in recent years as evidenced by promulgated or proposed government policies and commitments by many of our customers to further invest in sustainable energy sources. Our industry could be further challenged as our customers rebalance their capital investments to include alternative energy sources, as well as respond to the normal cycles that have historically existed in our industry. We also expect inflationary pressures to persist as well as continue to experience disruptions in supply chains and distribution channels.

 

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Nonetheless, the global energy demand is predicted to increase over the coming decades, and we expect that offshore oil and gas will continue to play an important and sustainable role in meeting this demand.

Significant Customers

During the three years ended December 31, 2021, we principally conducted our contract drilling operations in Canada, Far East Asia, the Middle East, the North Sea, Oceania, the Black Sea, Africa, South America and the US Gulf of Mexico.

The following table sets forth revenues from our customers as a percentage of our consolidated operating revenues:

 

   Successor  Predecessor 
   Period From
February 6, 2021
through
December 31, 2021
  Period From
January 1, 2021
through
February 5, 2021
  Year Ended
December 31, 2020
  Year Ended
December 31, 2019(1)
 

Royal Dutch Shell plc

   13.3  30.0  21.7  36.5

Exxon Mobil Corporation

   39.1  29.8  26.6  13.7

Equinor ASA

   3.1  5.2  14.3  13.1

Saudi Arabian Oil Company

   9.8  13.9  13.8  11.9

 

(1)

Excluding the Noble Bully II contract buyout, revenues from Shell, ExxonMobil, Equinor and Saudi Aramco accounted for approximately 27.1 percent, 15.7 percent, 15.1 percent and 13.6 percent, respectively, of our consolidated operating revenues for the year ended December 31, 2019.

No other customer accounted for more than 10 percent of our consolidated operating revenues in 2021, 2020 or 2019.

Human Capital

At December 31, 2021, we had approximately 1,800 employees, excluding approximately 1,000 persons we engaged through labor contractors or agencies. Approximately 88 percent of our workforce is located offshore. We are not a party to any material collective bargaining agreements, and we consider our employee relations to be satisfactory.

Our compliance program is focused on ensuring adherence with the highest ethical standards and applicable laws and setting the tone for an ethical work environment. Noble’s commitment to a strong compliance culture is fundamental to who we are as a leading offshore drilling contractor. We uphold our Core Value of respecting the dignity and worth of all employees and are committed to advancing a more diverse and inclusive workplace. The Noble Code, Noble’s code of business conduct and ethics (the “Code of Conduct”), provides the foundation for our culture and underscores our commitment to our Core Values of safety, environmental stewardship, honesty and integrity, respect and performance. It also includes our responsibility and commitment to follow all applicable laws as well as our own internal policies, and requires any supplier or third party who works with Noble to comply with similar fundamental principles.

Operating our business in a socially responsible way is integral to who we are. Internally, our employee-focused programs, such as training and continuing education, our promotion and advancement program, diversity, equity, and inclusion, recruitment initiatives, and retirement and benefits, are key to our commitment to the personal and professional growth of our workforce. Externally, our dedication is evidenced by our affiliations and how we contribute to and invest in the communities where we operate.

Recruitment and Promotions. We value a healthy culture of ingenuity and adaptability where everyone has an equal opportunity to thrive. We recognize that an inclusive and diverse workforce is key to the advancement

 

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and retention of the best qualified people leading to strong innovation and our continued success. We are committed to a policy of recruitment and promotion based upon job qualifications, performance and merit without discrimination.

Safety and Environmental Stewardship. Noble is committed to delivering excellent health, safety and environmental (“HSE”) performance as part of our business strategy in order to add further value for employees, customers, and shareholders. Safety and environmental stewardship are the cornerstone of who we are, what we stand for and what we do every day to deliver a high-quality operation. All personnel, regardless of job or position onboard our vessels or at any Noble facility, has the authorization and obligation to immediately stop any unsafe act, practice or job that that poses any risk or danger to people or the environment. Noble’s pursuit of exceptional HSE performance begins with our strong corporate culture and by starting SAFE every day: one tour, one task and one person at a time. SAFE is an acronym for the phrase: follow Standards, be Accountable, stay Focused, achieve Excellence. Daily, the crew onboard each rig work together to achieve specific safety and environmental objectives and if all objectives are met, then the day is counted as a SAFE Day. Under our SAFE Day program, in 2021, our rigs achieved the SAFE objectives 98.9% of available days, which is an increase over 2020 performance, and our total recordable incident rate for 2021 increased 9% from the prior year.

Training and Continuing Education. We place considerable value on the training and development of our employees and maintain a practice of keeping them informed on matters affecting them, as well as on the performance of the Company. Accordingly, we conduct formal and informal meetings with employees, maintain a Company intranet website with matters of interest, issue periodic publications of Company activities and other matters of interest, and offer a variety of in-house training, including through NobleAdvances, our state-of-the-art training facility in Sugar Land, Texas. When travel became a challenge, we developed and enhanced virtual and worksite training courses, some of which are facilitated through our rig-based leadership and are accredited through the International Association of Drilling Contractors.

In consideration of the negative impact of COVID-19 on our employees, customers, suppliers and the communities in which we operate, as well as associated human rights concerns that may exist in the areas in which we operate, we have taken, and will continue to take, incremental measures to monitor, identify and manage risks associated with the COVID-19 pandemic. Throughout the pandemic, we have continued operations in support of essential infrastructure in the energy industry while carefully ensuring worker safety. We have been able to maintain operation of our rigs by implementing several mitigations, such as extending crew schedules to offset travel delays due to limitations or restrictions, implementing quarantine measures in advance of persons boarding our rigs to prevent the spread of COVID-19 on board and enhancing crew health monitoring and response measures to prevent an outbreak on board any of our vessels. We have also continued the operation of our shore-side offices by implementing social distancing programs and implementing staggered rotational schedules for facility employees to reduce the number of persons on site. In addition, we have increased internal contingency planning, protective measures and employee communications and reinforced our employee wellness programs with all offshore and shore-side employees to offset the potential impact on employees both personally and professionally.

Governmental Regulations and Environmental Matters

Our environmental commitment is to protect our world and its resources in a manner led by our Mission and Core Values. With our experience and procedural discipline, we are able to operate with excellence, delivering efficient and reliable services for the benefit of our customers as well as our community, which includes everyone from our investors, to our workers, and the communities where we live and operate. Political developments and numerous governmental regulations, which may relate directly or indirectly to the contract drilling industry, affect many aspects of our operations. Our contract drilling operations are subject to various laws and regulations in countries in which we operate, including laws and regulations relating to the equipping, supplying and operation of drilling units, environmental protection and related recordkeeping, health and safety of personnel, safety management systems, the reduction of atmospheric emissions that contribute to a cumulative

 

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effect on the overall air quality and environment (commonly referred to as greenhouse gases), economic sanctions, currency conversions and repatriation, oil and gas exploration and development, taxation of capital equipment, taxation of offshore earnings and earnings of expatriate personnel, employee benefits and use of local employees, content and suppliers by foreign contractors. A number of countries actively regulate and control the ownership of concessions and companies holding concessions, the exportation of oil and gas and other aspects of the oil and gas industries in their countries. In addition, government actions, including initiatives by OPEC and OPEC+, may continue to contribute to oil price volatility. In some areas of the world, this government activity has adversely affected the amount of exploration and development work done by oil and gas companies and influenced their need for offshore drilling services, and likely will continue to do so.

The regulations applicable to our operations include provisions that regulate the discharge of materials into the environment or require remediation of contamination under certain circumstances. Many of the countries in whose waters we operate from time to time regulate the discharge of oil and other contaminants in connection with drilling and marine operations. Failure to comply with these laws and regulations, or failure to obtain or comply with permits, may result in the assessment of administrative, civil and criminal penalties, imposition of remedial requirements and the imposition of injunctions to force future compliance. Although these requirements impact the oil and gas and energy services industries, generally, they do not appear to affect us in any material respect that is different, or to any materially greater or lesser extent, than other companies in the energy services industry. However, our business and prospects could be adversely affected by regulatory activity that prohibits or restricts our customers’ exploration and production activities, resulting in reduced demand for our services or imposing environmental protection requirements that result in increased costs to us, our customers or the oil and natural gas industry in general.

The following is a summary of some of the existing laws and regulations that apply in the United States and Europe, which serves as an example of the various laws and regulations to which we are subject. While laws vary widely in each jurisdiction, each of the laws and regulations below addresses regulatory issues similar to those in most of the other jurisdictions in which we operate.

Offshore Regulation and Safety. In response to the Macondo well blowout incident in April 2010, the United States Congress, the US Department of Interior, through the BOEM and the BSEE, and the US Department of Homeland Security, through the United States Coast Guard (“USCG”), have undertaken an aggressive overhaul of the offshore oil and natural gas related regulatory processes, which has significantly impacted oil and gas development and operational requirements in the US Gulf of Mexico. Such actions by the US government has, on occasion, served as a leading indicator for similar regulatory developments or requirements by other countries where, from time to time, new rules, regulations and requirements in the United States and in other countries have been proposed and implemented that materially limit or prohibit, and increase the cost of, offshore drilling and related operations. Other similar regulations impact certain operational requirements on rigs and govern liability for vessel or cargo loss, or damage to life, property, or the marine environment. See “Risk Factors—Regulatory and Legal Risks—Changes in, compliance with, or our failure to comply with the certain laws and regulations may negatively impact our operations and could have a material adverse effect on our results of operations” and “Risk Factors—Regulatory and Legal Risks—Governmental laws and regulations may add to our costs, result in delays, or limit our drilling activity” for additional information.

Spills and Releases. The US Oil Pollution Act of 1990 (“OPA”), the Comprehensive Environmental Response, Compensation, and Liability Act in the United States (“CERCLA”), and similar regulations, including but not limited to the International Convention for the Prevention of Pollution from Ships (“MARPOL”), adopted by the IMO, as enforced in the United States through the domestic implementing law called the Act to Prevent Pollution from Ships, impose certain operational requirements on offshore rigs operating in the United States and govern liability for leaks, spills and blowouts involving pollutants. OPA imposes strict, joint and several liabilities on “responsible parties” for damages, including natural resource damages, resulting from oil spills into or upon navigable waters, adjoining shorelines or in the exclusive economic zone of the United States. A

 

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“responsible party” includes the owner or operator of an onshore facility and the lessee or permit holder of the area in which an offshore facility is located. CERCLA and similar state and foreign laws and regulations, impose joint and several liabilities, without regard to fault or the legality of the original act, on certain classes of persons that contributed to the release of a “hazardous substance” into the environment. In the course of our ordinary operations, we may generate waste that may fall within the scope of CERCLA’s definition of a “hazardous substance.” However, we have to-date not received any notification that we are, or may be, potentially responsible for cleanup costs under CERCLA.

Regulations under OPA require owners and operators of rigs in United States waters to maintain certain levels of financial responsibility. The failure to comply with OPA’s requirements may subject a responsible party to civil, criminal, or administrative enforcement actions. We are not aware of any action or event that would subject us to liability under OPA, and we believe that compliance with OPA’s financial assurance and other operating requirements will not have a material impact on our operations or financial condition.

Waste Handling. The US Resource Conservation and Recovery Act (“RCRA”), and similar state, local and foreign laws and regulations govern the management of wastes, including the treatment, storage and disposal of hazardous wastes. RCRA imposes stringent operating requirements, and liability for failure to meet such requirements, on a person who is either a “generator” or “transporter” of hazardous waste or an “owner” or “operator” of a hazardous waste treatment, storage or disposal facility. RCRA and many state counterparts specifically exclude from the definition of hazardous waste drilling fluids, produced waters, and other wastes associated with the exploration, development, or production of crude oil and natural gas. As a result, our operations generate minimal quantities of RCRA hazardous wastes. We do not believe the current costs of managing our wastes, as they are presently classified, to be significant. However, any repeal or modification of this or similar exemption in similar state statutes, would increase the volume of hazardous waste we are required to manage and dispose of, and would cause us, as well as our competitors, to incur increased operating expenses with respect to our US operations.

Water Discharges. The US Federal Water Pollution Control Act of 1972, as amended, also known as the “Clean Water Act,” and similar state laws and regulations impose restrictions and controls on the discharge of pollutants into federal and state waters. These laws also regulate the discharge of storm water in process areas. Pursuant to these laws and regulations, we are required to obtain and maintain approvals or permits for the discharge of wastewater and storm water. In addition, the USCG has promulgated requirements for ballast water management as well as supplemental ballast water requirements, which includes limits and, in some cases, water treatment requirements applicable to specific discharge streams, such as deck runoff, bilge water and gray water. Further, in October 2020, the EPA published proposed national standards of performance for incidental discharges pursuant to the Vessel Incidental Discharge Act. The proposed rule would establish discharge standards for a range of vessels, including mobile offshore drilling units. Within two years after the EPA publishes its final performance standards, the USCG must develop corresponding implementation, compliance and enforcement regulations regarding ballast water. We do not anticipate that compliance with these laws and regulations will cause a material impact on our operations or financial condition.

Air Emissions. The US Federal Clean Air Act and associated state laws and regulations restrict the emission of air pollutants from many sources, including oil and natural gas operations. New facilities may be required to obtain permits before operations can commence, and existing facilities may be required to obtain additional permits, and incur capital costs, in order to remain in compliance. Federal and state regulatory agencies can impose administrative, civil and criminal penalties for non-compliance with air permits or other requirements of the Clean Air Act and associated state laws and regulations. In general, we believe that compliance with the Clean Air Act and similar state laws and regulations will not have a material impact on our operations or financial condition.

Climate Change. Climate change is an environmental, social and economic challenge facing everyone today. We are committed to continuous improvement and a sustainable energy future, supported by our efforts to

 

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protect the environment throughout our operations and safely provide reliable and efficient services to allow access to resources essential for human and economic prosperity. There is increasing attention concerning the issue of climate change and the effect of GHG emissions.

Legislative and regulatory measures to address climate change and GHG emissions are in various phases of discussion or implementation. The EPA regulates the permitting of GHG emissions from stationary sources under the Clean Air Act’s Prevention of Significant Deterioration and Title V permitting programs, which require the use of “best available control technology” for GHG emissions from new and modified major stationary sources, which can sometimes include our rigs. The EPA has also adopted rules requiring the monitoring and reporting of GHG emissions from specified sources in the United States, including, among other things, certain onshore and offshore oil and natural gas production facilities, on an annual basis.

Moreover, in 2005, the Kyoto Protocol to the 1992 United Nations Framework Convention on Climate Change, which establishes a binding set of emission targets for GHGs, became binding on all countries that had ratified it. In 2015, the United Nations (“U.N.”) Climate Change Conference in Paris resulted in the creation of the Paris Agreement. In September 2016, the US deposited its instrument of acceptance of the Paris Agreement, which later entered into force on November 4, 2016. The Paris Agreement requires countries to review and “represent a progression” in their nationally determined contributions, which set emissions reduction goals, every five years beginning in 2020. In November 2019, the US submitted formal notification to the U.N. of its decision to withdraw from the Paris Agreement, which took effect on November 4, 2020. However, in January 2021, shortly after Joseph Biden was sworn into office as the President of the United States, a series of executive orders were issued regarding climate change, which in part led to the US again depositing an instrument of acceptance of the Paris Agreement, which thereafter re-entered into force for the US on February 19, 2021. The terms of the Paris Agreement and the executive orders are expected to result in additional regulations or changes to existing regulations, which could have a material adverse effect on our business in the US and that of our customers. In addition, incentives to conserve energy or use alternative energy sources in many of the countries where we currently operate or may operate in the future, could have a negative impact on our business in those countries and worldwide. See “Risk Factors—Regulatory and Legal Risks—Governmental laws and regulations may add to our costs, result in delays, or limit our drilling activity” for additional information.

Countries in the European Union (“EU”) implement the U.N.’s Kyoto Protocol on GHG emissions through the Emissions Trading System (“ETS”). The ETS program establishes a GHG “cap and trade” system for certain industry sectors, including power generation at some offshore facilities. Total GHG from these sectors is capped, and the cap is reduced over time to achieve GHG reductions from these sectors. In July 2021, the European Commission adopted a series of legislative proposals setting out how it intends to achieve climate neutrality in the EU by 2050, including an intermediate 55% GHG reduction target by 2030. In order to reach this goal, the European Commission has proposed potential revisions and expansions of the EU ETS. Additionally, in 2021, the EU proposed adding shipping to its ETS beginning in 2023 and phasing in over a three-year period.

In addition, the UK government implemented its own ETS in January 2021 to replace the UK’s participation in the EU ETS. The UK has also introduced an auction price floor to prevent carbon prices from dropping below a set level during the initial implementation of the UK ETS. The cost of compliance with the UK ETS and the EU ETS can be expected to increase over time. Additional member state climate change legislation may result in potentially material capital expenditures.

Finally, climate change could increase the frequency and severity of adverse weather conditions, including hurricanes, typhoons, cyclones, winter storms and rough seas. If such effects were to occur, they could have an adverse impact on our operations.

Worker Safety. The US Occupational Safety and Health Act (“OSHA”) and other similar laws and regulations govern the protection of the health and safety of employees. The OSHA hazard communication standard, EPA community right-to-know regulations under Title III of CERCLA and similar state statutes require

 

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that information be maintained about hazardous materials used or produced in our operations and that this information be provided to employees, state and local governments and citizens. EU member states have also adopted regulations pursuant to EU Directive 2013/30/EU, on the safety of offshore oil and gas operations within the exclusive economic zone (which can extend up to 200 nautical miles from a coast) or the continental shelf. We believe that we are in substantial compliance with OSHA requirements and EU directive 2013/30/EU (as well as the extensive current health and safety regimes implemented in the member states in which we operate), but future developments could require the Company to incur significant costs to comply with the directive’s implementation.

International Regulatory Regime. The IMO provides international regulations governing shipping and international maritime trade. IMO regulations have been widely adopted by U.N. member countries, and in some jurisdictions in which we operate, these regulations have been expanded upon. The requirements contained in the International Management Code for the Safe Operation of Ships and for Pollution Prevention, or ISM Code, promulgated by the IMO, govern much of our drilling operations. Among other requirements, the ISM Code requires the party with operational control of a vessel to develop an extensive safety management system that includes, among other things, the adoption of a safety and environmental protection policy setting forth instructions and procedures for operating its vessels safely and describing procedures for responding to emergencies.

The IMO has also adopted and revised MARPOL, including Annex VI to MARPOL, which limits the main air pollutants contained in exhaust gas from ships, including sulfur oxides (“SOx”) and nitrous oxides (“NOx”), prohibits deliberate emissions of ozone depleting substances, regulates shipboard incineration and the emissions of volatile organic compounds from tankers, sets a progressive reduction globally in emissions of SOx, NOx and particulate matter, introduces emission control areas to reduce emissions of those air pollutants further in designated sea areas, and effective from January 1, 2020, reduces the global sulfur limit in fuel oil from the current 3.50% to 0.50% m/m (mass by mass) sulfur content. Prior to January 1, 2020, our rigs were operating and continue to operate with low sulfur fuel oil at or below the global limits of 0.50%.

The IMO has also negotiated international conventions that impose liability for oil pollution in international waters and the territorial waters of the signatory to such conventions such as the Ballast Water Management Convention, (the “BWM Convention”) and the International Convention for Civil Liability for Bunker Oil Pollution Damage of 2001 (the “Bunker Convention”). The BWM Convention’s implementing regulations call for a phased introduction of mandatory ballast of water exchange requirements, to be replaced in time with a requirement for mandatory ballast water treatment. The Bunker Convention provides a liability, compensation and compulsory insurance system for the victims of oil pollution damage caused by spills of bunker oil. We believe that all of our drilling rigs are currently compliant in all material respects with these regulations. However, the IMO continues to review and introduce new regulations. It is impossible to predict what additional regulations, if any, may be passed by the IMO and what effect, if any, such regulation may have on our operations.

Insurance and Indemnification Matters

Our operations are subject to many hazards inherent in the drilling business, including blowouts, fires, collisions, groundings, punch-throughs, and damage or loss from adverse weather and sea conditions. These hazards could cause personal injury or loss of life, loss of revenues, pollution and other environmental damage, damage to or destruction of property and equipment and oil and natural gas producing formations, and could result in claims by employees, customers or third parties and fines and penalties.

Our drilling contracts provide for varying levels of indemnification from our customers and in most cases also require us to indemnify our customers for certain losses. Under our drilling contracts, liability with respect to personnel and property is typically assigned on a “knock-for-knock” basis, which means that we and our customers assume liability for our respective personnel and property, generally irrespective of the fault or negligence of the party indemnified. In addition, our customers may indemnify us in certain instances for damage to our down-hole equipment and, in some cases, our subsea equipment. Also, we generally obtain a mutual waiver of consequential losses in our drilling contracts.

 

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Our customers typically assume responsibility for and indemnify us from loss or liability resulting from pollution or contamination, including third-party damages and clean-up and removal, arising from operations under the contract and originating below the surface of the water. We are generally responsible for pollution originating above the surface of the water and emanating from our drilling units. Additionally, our customers typically indemnify us for liabilities incurred as a result of a blow-out or cratering of the well and underground reservoir loss or damage. In the current market, we are under increasing pressure to accept exceptions to the above-described allocations of risk and, as a result, take on more risk. In such cases where we agree, we generally limit the exposure with a monetary cap and other restrictions.

In addition to the contractual indemnities described above, we also carry Protection and Indemnity (“P&I”) insurance, which is a comprehensive general liability insurance program covering liability resulting from offshore operations. Our P&I insurance includes coverage for liability resulting from personal injury or death of third parties and our offshore employees, third-party property damage, pollution, spill clean-up and containment and removal of wrecks or debris. We also carry hull and machinery insurance that protects us against physical loss or damage to our drilling rigs. Our P&I and hull and machinery insurance program is renewed in April of each year, with the P&I program currently carrying a limit of $50.0 million per occurrence of which Noble retains the first $5.0 million per occurrence, plus excess liability coverage of $700.0 million in the aggregate. Our hull and machinery insurance is subject to a deductible that is currently $5.0 million, except with respect to loss or damage from named windstorms in the Gulf of Mexico, in which event the current deductible is $10.0 million.

Our insurance policies and contractual rights to indemnity may not adequately cover our losses and liabilities in all cases. For additional information, please read “Risk Factors—Risks Related to Our Business and Operations—We may have difficulty obtaining or maintaining insurance in the future and our insurance coverage and contractual indemnity rights may not protect us against all the risks and hazards we face.”

The above description of our insurance program and the indemnification provisions of our drilling contracts is only a summary as of the time of preparation of this prospectus, and is general in nature. Our insurance program and the terms of our drilling contracts may change in the future. In addition, the indemnification provisions of our drilling contracts may be subject to differing interpretations, and enforcement of those provisions may be limited by public policy and other considerations.

Available Information

Finco’s and Noble Parent’s Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act are available free of charge at our website. The SEC maintains an internet site that contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC at http://www.sec.gov.

You may also find information related to Noble Parent’s corporate governance, Board committees and company code of ethics (and any amendments or waivers of compliance) at our website. Among the documents you can find there are the following documents of Noble Parent:

 

  

Amended and Restated Articles of Association (the “Articles”);

 

  

Code of Conduct;

 

  

Corporate Governance Guidelines;

 

  

Audit Committee Charter;

 

  

Compensation Committee Charter;

 

  

Nominating, Governance and Sustainability Committee Charter;

 

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Finance Committee Charter; and

 

  

Sustainability Report.

Our website address is http://www.noblecorp.com. Investors should also note that Finco and Noble Parent announce material financial information in SEC filings, press releases and public conference calls. Based on guidance from the SEC, we may use the investor relations section of our website to communicate with our investors. It is possible that the financial and other information posted there could be deemed to be material information. Documents and information contained on or linked to or from our website are not part of, and are not incorporated by reference into, this prospectus.

 

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MANAGEMENT

Finco is a wholly-owned subsidiary of Noble Parent. Commencing as of the Effective Date, by operation of the Plan, the Board of Noble Parent consisted of six members selected in accordance with the Plan: Charles M. Sledge, as Chairman of the Board, Patrick J. Bartels, Jr., Robert W. Eifler, Alan J. Hirshberg, Ann D. Pickard, and Melanie M. Trent. On April 19, 2021, the Board appointed Paul Aronzon to serve as a director. The Board consists of a single class of directors with an initial term of office to expire at the next annual general meeting of shareholders of Noble Parent for the election of directors or the date on which the successor of such director is elected. Executive officers of Noble Parent serve at the discretion of the Board, subject to the applicable employment agreements.

Except for the director designation right described under “Selling Securityholders,” there is no other arrangement or understanding between or among members of the Board and any other persons pursuant to which he or she was appointed as a member of the Board. None of the members of the Board have any family relationship with any director or executive officer of Noble Parent. There is no relationship between any member of the Board and Noble Parent that would require disclosure pursuant to Item 404(a) of Regulation S-K.

Information About Executive Officers and Directors

The following table presents certain information with respect to Noble Parent’s executive officers and directors as of the date of this prospectus:

 

Name

 Age 

Position with Noble Parent

Robert W. Eifler

 42 Director, President and Chief Executive Officer

Paul Aronzon

 67 Director

Patrick J. Bartels, Jr.

 46 Director

Alan J. Hirshberg

 60 Director

Ann D. Pickard

 66 Director

Charles M. Sledge

 56 Director and Chairman of the Board

Melanie M. Trent

 57 Director

Richard B. Barker

 41 Senior Vice President and Chief Financial Officer

William E. Turcotte

 58 Senior Vice President, General Counsel and Corporate Secretary

Blake A. Denton

 43 Vice President, Marketing and Contracts

Joey M. Kawaja

 48 Vice President of Operations

Directors

Robert W. Eifler. Mr. Eifler was named President and Chief Executive Officer of the Company in May 2020. Previously, Mr. Eifler served as Senior Vice President, Commercial of the Company from August 2019 until assuming his position as President and Chief Executive Officer of the Company. Mr. Eifler served as Senior Vice President, Marketing and Contracts of the Company from February 2019 to August 2019, and as Vice President and General Manager—Marketing and Contracts of the Company from July 2017 to February 2019. Before that, Mr. Eifler led the Company’s marketing and contracts efforts for the Eastern Hemisphere while based in London. From November 2013 to March 2015, Mr. Eifler worked for Hercules Offshore, Inc., an offshore driller, as Director, International Marketing. Mr. Eifler originally joined the Company in February 2005 as part of the management development program and held numerous operational and marketing roles with increasing responsibility around the world until joining Hercules Offshore, Inc. in 2013. Mr. Eifler brings to the Board extensive knowledge of the Company and the industry as the President and Chief Executive Officer of the Company.

Paul Aronzon. Mr. Aronzon is a strategic financial consultant with extensive experience in successful exchange and tender offers, proxy contests, rights offerings, M&A (company and asset sales) and financing transactions, prepackaged or prearranged reorganizations, contested or litigated (including cram down) Chapter

 

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11 cases, consensual Chapter 11 cases and numerous successful dispute resolution matters, using mediation and various settlement processes. Mr. Aronzon is the founder of PSA Consulting, LLC, where he currently provides financial and business advice and fiduciary services, including as an independent director, lead director, chairperson or special committee member on boards of directors for public/public reporting and private companies in a variety of industries. Mr. Aronzon is also currently affiliated with Arete Capital Partners, as a Principal, providing similar services. Formerly co-managing partner of Milbank’s Los Angeles office and co-leader of Milbank’s Global Financial Restructuring Group, he has over 40 years of experience as an attorney and lead advisor. He also served as the Executive Vice President at Imperial Capital and co-head of its Corporate Finance Group from 2006 to 2008. Mr. Aronzon has advised companies, boards, board committees, independent directors, sponsors, parties acquiring assets, debt or companies and others in transactions across a wide array of industries including, but not limited to, aerospace/defense, agriculture, airlines, apparel and textiles, automotive, broadcasting/cable and other media, chemical, commercial fishing, commercial real estate, construction, commodities trading, energy and electricity, entertainment, equipment rental and leasing, financial services, food and beverage, gaming, healthcare, housing development and home building, manufacturing, mining and timber, metals (including steel, aluminum and copper), oil and gas, pharmaceutical and nutraceutical, project finance, professional service firms (law, accounting and investment banking), publishing, retail, shipping, super markets, telecommunications, technology and bio-science. Mr. Aronzon holds a J.D. from Southwestern University School of Law and a B.A. degree in Political Science from California State University at Northridge, Los Angeles, California.

Patrick J. Bartels, Jr. Mr. Bartels has served as the Managing Member of Redan Advisors LLC, a firm that provides fiduciary services, including board of director representation and strategic planning advisory services for domestic and international public and private business entities, since December 2018. Prior to founding Redan Advisors LLC, Mr. Bartels was a senior investment professional with 20 years of experience. His professional experience includes investing in complex financial restructurings and process-intensive situations in North America, Asia and Europe in a broad universe of industries. Mr. Bartels has served as a director on numerous public and private boards of directors with an extensive track-record of driving value-added returns for all stakeholders through governance, incentive alignment, capital markets transactions, and mergers and acquisitions. Mr. Bartels currently serves on the board of Arch Resources, Inc. and on several private company boards. He previously served on the boards of WCI Communities, Inc., Libbey Inc., B. Riley Principal Merger Corp., and B. Riley Principal Merger Corp. II, and on several private company boards. From 2002 to November 2018, Mr. Bartels served as a Managing Principal at Monarch Alternative Capital LP, a private investment firm that focused primarily on event-driven credit opportunities. Prior to Monarch Alternative Capital LP, he served as Research Analyst for high yield investments at INVESCO, where he analyzed primary and secondary debt offerings of companies in various industries. Mr. Bartels began his career at PricewaterhouseCoopers LLP, where he was a Certified Public Accountant. He holds the Chartered Financial Analyst designation. Mr. Bartels received a Bachelor of Science in Accounting with a concentration in Finance from Bucknell University. Mr. Bartels brings to the Board extensive accounting, financial and investment experience, as well as experience as a director for multiple companies including several that have undertaken bankruptcy and restructuring processes.

Alan J. Hirshberg. Mr. Hirshberg has served as a Senior Advisor at Blackstone Management Partners from January 2019 to January 2022. He joined ConocoPhillips in 2010 as its Senior Vice President, Planning and Strategy, and retired in January 2019 as its Executive Vice President, Production, Drilling and Projects, a position he held since April 2016. In this role, he had responsibility for ConocoPhillips’ worldwide operations, as well as supply chain, aviation, marine, major projects, drilling and engineering functions. Prior to joining ConocoPhillips, Mr. Hirshberg worked at Exxon and ExxonMobil for 27 years, serving in various senior leadership positions in upstream research, production operations, major projects and strategic planning. His last role at ExxonMobil was Vice President of Worldwide Deepwater and Africa Projects. Mr. Hirshberg is currently on the boards of Falcon Minerals Corporation and McDermott International. Mr. Hirshberg received Bachelor and Master of Science degrees in Mechanical Engineering from Rice University. Mr. Hirshberg brings to the

 

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Board significant knowledge and insight into overseeing management of strategic initiatives and global operations as well as deep industry experience and knowledge.

Ann D. Pickard. Ms. Pickard retired from Royal Dutch Shell in 2016. Ms. Pickard held numerous positions of increasing responsibility during her 15-year tenure with Shell. She last served as Executive Vice President, Arctic and was responsible for Shell’s Arctic exploration efforts. This followed three successful years as Executive Vice President of Shell’s Exploration and Production business and Country Chair of Shell in Australia where she oversaw Gas Commercialization, Manufacturing, Chemicals, Supply and Distribution, Retail, Lubricants, Trading and Shipping, and Alternative Energy. Ms. Pickard was previously Shell’s Regional Executive Vice President for Sub Saharan Africa. Based in Lagos, Nigeria, she was accountable for Shell’s Exploration & Production, Natural Gas, and Liquefied Natural Gas (LNG) activities in the region. Before that, Ms. Pickard was Director, Global Businesses and Strategy and a member of the Shell Gas & Power Executive Committee with responsibility for Global LNG, Power, and Gas & Power Strategy. Ms. Pickard joined Shell in 2000 after an 11-year tenure with Mobil prior to its merger with Exxon. Ms. Pickard has significant business experience throughout South America, Australia, the countries of the former Soviet Union, the Middle East and Africa. Ms. Pickard is a director of KBR, Inc., where she is the Chairman of the Health, Safety, Security, Environment and Social Responsibility Committee and a member of the Audit Committee, a director of Woodside Petroleum Ltd., where she serves as the Chairman of the Sustainability Committee, and The University of Wyoming Foundation, where she serves on the Budget/Audit Committee. In addition, Ms. Pickard is a member of Chief Executive Women. She was a member of the Advisory Council of the Eurasia Foundation and Global Agenda Council on the Arctic for the World Economic Forum. Ms. Pickard also served on the Board of Advisors of Catalyst and was a director of Westpac Banking Corporation. Ms. Pickard holds a Bachelor of Arts degree from the University of California, San Diego and a Master of Arts degree from the University of Pennsylvania. Ms. Pickard brings to the Board significant global business and leadership experience and deep industry knowledge.

Charles M. Sledge. Mr. Sledge previously served as the Chief Financial Officer of Cameron International Corporation, an oilfield services company, from 2008 until its sale to Schlumberger Limited in 2016. Prior to that, he served as the Corporate Controller of Cameron International Corporation from 2001 until 2008. He currently serves on the boards of Weatherford International plc, where he serves as chairman, and Talos Energy LLC. He previously served on the boards of Expro International, Vine Energy, Inc., Templar Energy and Stone Energy. Mr. Sledge received a BS in Accounting from Louisiana State University. Mr. Sledge brings to the Board experience and knowledge gained as an executive officer in the energy industry and extensive accounting and financial experience.

Melanie M. Trent. Ms. Trent previously served in various legal, administrative and compliance capacities for Rowan Companies plc, a global offshore drilling contractor (now part of Valaris, plc), from 2005 until April 2017, including as an Executive Vice President, General Counsel and Chief Administrative officer from 2014 until April 2017, as Senior Vice President, Chief Administrative Officer and Company Secretary from 2011 until 2014, and as Vice President and Corporate Secretary from 2010 until 2011. Prior to her tenure at Rowan Companies plc, Ms. Trent served in various legal, administrative and investor relations capacities for Reliant Energy Incorporated, served as counsel at Compaq Computer Corporation and as an associate at Andrews Kurth LLP. Ms. Trent serves on the boards of Diamondback Energy, Inc. and Arcosa, Inc. She previously served on the board of Frank’s International. Ms. Trent holds a Bachelor’s degree from Middlebury College and a Juris Doctorate degree from Georgetown University Law Center. Ms. Trent brings to the Board strong industry knowledge gained from senior management positions in the offshore drilling sector and experience as a director for diverse, energy-related companies.

None of the corporations or other organizations in which our non-management directors carried on their respective principal occupations and employments or for which our non-management directors served as directors during the past five years is a parent, subsidiary or other affiliate of Noble Parent.

 

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Executive Officers

Robert W. Eifler. See “—Directors” above.

Richard B. Barker. Mr. Barker was named Senior Vice President and Chief Financial Officer of the Company in March 2020. Prior to joining the Company, Mr. Barker served as Managing Director of Moelis & Company, a leading global independent investment bank, where he specialized in advising oilfield services and equipment clients in the oil and gas sector, from August 2019 to March 2020. He has 15 years of investment banking experience working with oil and gas companies globally. Prior to joining Moelis & Company, Mr. Barker was Managing Director and Head of Oilfield Services for North America at JPMorgan Chase & Co., where he held roles of increasing responsibility from May 2015 to August 2019. From May 2011 to May 2015, he worked at Tudor, Pickering, Holt & Co., most recently as Executive Director, where he worked with oilfield services companies on a variety of strategic matters, including mergers and acquisitions, equity financing and capital structure policy. Mr. Barker began his investment banking career at Goldman Sachs, where he spent over five years through May 2011 in its Natural Resources Group.

William E. Turcotte. Mr. Turcotte was named Senior Vice President and General Counsel of the Company in December 2008. He was named Corporate Secretary of the Company in January 2018. Prior to joining the Company, Mr. Turcotte served as Senior Vice President, General Counsel and Corporate Secretary of Cornell Companies, Inc., a private corrections company, since March 2007. He served as Vice President, Associate General Counsel and Assistant Secretary of Transocean, Inc., an offshore oil and gas drilling contractor, from October 2005 to March 2007, and as Associate General Counsel and Assistant Secretary from January 2000 to October 2005. From 1992 to 2000, Mr. Turcotte served in various legal positions with Schlumberger Limited in Houston, Caracas and Paris. Mr. Turcotte was in private practice prior to joining Schlumberger Limited.

Blake A. Denton. Mr. Denton was named Vice President of Marketing and Contracts of the Company in March 2020. Previously, Mr. Denton served as Director of Marketing and Contracts for the Company from January 2017 until assuming his position as Vice President, where he led the Company’s marketing and contracts efforts for the Middle East and India while based in Dubai. Prior to that, Mr. Denton served as the Company’s Project Director from March 2012 to January 2017 based in Korea and Houston, and as Project Manager from August 2010 to March 2012 based in Singapore. Before that, Mr. Denton led the Company’s newbuild project electrical engineering efforts for dynamically positioned drilling assets as a consultant based first in Houston and then in Singapore. Before joining the Company, Mr. Denton worked for a Houston-based electrical integration company supplying power generation and controls equipment primarily to the marine and drilling industry worldwide.

Joey M. Kawaja. Mr. Kawaja was named Vice President of Operations of the Company in October 2020. Mr. Kawaja has over 25 years of experience in offshore rig operations and project management. Previously, Mr. Kawaja served as Regional Manager—Western Hemisphere for the Company from August 2014 until assuming his position as Vice President of Operations, where he led all of the Company’s shorebased and offshore operations in North and South America. Prior to that, Mr. Kawaja served in various roles, including Operations Manager, Drilling Superintendent and Project Manager, since joining the Company in 1996.

Legal Proceedings

There have been no material legal proceedings requiring disclosure under the federal securities laws within the past ten years that are material to an evaluation of the ability or integrity of our directors or executive officers, except that, as previously disclosed, we voluntarily filed a petition under Chapter 11 of the Bankruptcy Code in July 2020.

 

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EXECUTIVE AND DIRECTOR COMPENSATION

Compensation Discussion and Analysis

This Compensation Discussion and Analysis (“CD&A”) describes the compensation practices and decisions of Noble Parent regarding its named executive officers (“NEOs”) for the year ended December 31, 2021.

This CD&A is intended to provide context for the information contained in the executive compensation tables that follow this discussion under the heading “—2021 Compensation Information.” The 2021 compensation program and decisions described in this CD&A were determined by Noble Parent’s current compensation committee following our emergence from the Chapter 11 Cases on the Effective Date, which is comprised of the following three independent directors: Melanie M. Trent, Chair, Alan J. Hirshberg, and Charles M. Sledge. While this CD&A focuses on compensation for the NEOs for 2021, as the last completed fiscal year, in accordance with the rules of the SEC, we also describe compensation actions effected after the end of the last completed fiscal year to the extent we believe such discussion enhances the understanding of our executive compensation disclosures and our executive compensation structure.

As used in this “Executive and Director Compensation” section, when discussing time periods prior to the Effective Date, the terms “we,” “us,” “our,” and the “Company” refer to Legacy Noble and, as appropriate, its subsidiaries, the terms “Board” and “compensation committee” refer to the board of directors of Legacy Noble and the compensation committee of the board of directors of Legacy Noble, and the terms “share,” “shares” or “shareholders” refer to Legacy Noble’s ordinary shares and shareholders.

Executive Summary

The offshore drilling industry has for many years faced the challenging combination of a significant rig oversupply along with materially reduced global offshore rig demand stemming from a reduction in offshore development and exploration activity. While industry conditions improved slightly in 2019, the oil supply shock driven by production disagreements among OPEC+ members and the oil demand shock brought on by the effect of the global COVID-19 pandemic in early 2020 halted any momentum for recovery. Reflecting these market factors, the Legacy Noble share price suffered a precipitous decline from late 2014 through July 2020 when the effects of this downturn ultimately forced the Company and several of its industry peers into bankruptcy. A substantial portion of our NEO compensation during the years leading up to Legacy Noble’s bankruptcy represented long-term equity-based incentives for future performance, not actual cash compensation. These incentives were tied to the market price of Legacy Noble’s ordinary shares and the remaining awards as well as outstanding equity were ultimately cancelled in connection with our bankruptcy.

We emerged from bankruptcy on the Effective Date, which was February 5, 2021, and on that date formed the new Board and compensation committee. In April 2021, Noble Parent completed the Pacific Drilling Merger, and on June 9, 2021, Noble Parent’s ordinary shares began trading again on the NYSE. Then, in November 2021, Noble Parent entered into the Business Combination Agreement with Maersk Drilling, and the transaction is expected to close in mid-2022.

Over the course of 2021, oil prices recovered and have continued to rise during 2022. Drilling contracting activity also improved as our customer base started to increase their capital budgets. While we are cautiously optimistic that recent positive trends will continue, our industry continues to face significant uncertainties. Recently, the Russian invasion of Ukraine has further destabilized energy markets and is causing significant volatility.

Our industry is also challenged as our customers rebalance their capital investments to include alternative energy sources, as well as respond to the normal cycles that have historically existed in our industry. We also expect inflationary pressures to persist and expect to continue to experience disruptions in supply chains and

 

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distribution channels. Nonetheless, the global energy demand is predicted to increase, and we expect that offshore oil and gas will continue to play an important and sustainable role in meeting this demand over the foreseeable future.

Our executive compensation program reflects our pay-for-performance philosophy. Our compensation committee uses a combination of fixed and variable pay elements to achieve the objectives set forth below in “—Details of Our Compensation Program—Our Compensation Philosophy and Objectives.”

Certain aspects of the executive compensation paid in 2021 in connection with the emergence from bankruptcy were negotiated by Legacy Noble directly with the key creditor groups and reflected in the bankruptcy plan. These are discussed in more detail below.

Our NEOs

When used in this CD&A, our NEOs consist of the persons listed in the table below:

 

Name

  

Title

Robert W. Eifler

  President and Chief Executive Officer

Richard B. Barker

  Senior Vice President and Chief Financial Officer

William E. Turcotte

  Senior Vice President, General Counsel and Corporate Secretary

Joey M. Kawaja

  Vice President of Operations

Blake A. Denton

  Vice President, Marketing and Contracts

Details of Our Compensation Program

Our Compensation Philosophy and Objectives

We believe that strong corporate governance requires that our compensation program pays for performance and that it closely aligns our executives’ interests with those of our shareholders. We place a majority of executive pay at risk and subject a substantial portion of our NEOs’ potential compensation to specific annual and long-term performance metrics intended to drive Company success. We also follow certain simple foundational rules and best practices, and we strictly prohibit certain practices that do not meet our compensation standards. Notably, our executive compensation program contains shareholder-friendly features, including the following:

 

  

We pay for performance — a meaningful portion of NEO pay is contingent on attaining pre-established performance goals.

 

  

We mandate that at least 60% of all NEO annual equity awards be subject to attaining pre-established performance goals.

 

  

We require executives to maintain significant stock ownership.

 

  

We have a robust clawback provision enabling us to recoup previously paid cash and equity incentive compensation from our executive officers upon the occurrence of certain events.

 

  

We consult with independent compensation consultants when designing our compensation program and setting target levels of performance.

 

  

We prohibit pledging or hedging of Noble Parent shares.

 

  

We require a double trigger for cash severance benefits upon a change of control.

 

  

We prohibit repricing or buyout of underwater options.

 

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Our executive compensation program reflects our philosophy that executive compensation should be structured to closely align each executive’s interests with the interests of our shareholders, emphasizing equity-based incentives and performance-based pay. The primary objectives of the Company’s compensation program are to:

 

  

Support the Company’s growth strategy including acquiring and integrating assets and companies to drive long-term shareholder value creation.

 

  

Attract, retain, and motivate key executives capable of managing a complex, global business in a challenging and cyclical industry, by providing market competitive total compensation opportunities.

 

  

Emphasize a strong link between pay and performance with predefined short and long-term performance metrics that place the majority of total compensation at risk.

 

  

Align executive and shareholder interests by establishing market-relevant metrics, including focus on strategic ESG initiatives that drive shareholder value creation and address stakeholder expectations.

Consistent with this philosophy, we seek to provide a total compensation package for the NEOs that is competitive in respect of our Peer Group (as defined below) for a given year. A substantial portion of total compensation is subject to Company and individual performance and is subject to forfeiture. In designing these compensation packages, the compensation committee annually reviews each compensation component and compares its use and level to various internal and external performance standards and market reference points.

Components of our Compensation Program for our NEOs

The compensation program for our NEOs is designed to link pay with performance and consists of the following components:

 

  

Base pay. This fixed cash component of compensation provides executives with salary levels set to be competitive with our Benchmark Peer Group (as described below).

 

  

Annual short-term incentive compensation. This performance-based component of compensation is funded based on annual free cash flow, contract drilling margin, Total Recordable Incident Rate (“TRIR”), Loss of Primary Containment (“LOPC”) and ESG goals, each of which is relative to internal targets and is paid as an annual cash bonus through our short-term incentive plan (“STIP”).

 

  

Long-term incentive compensation. Our two components of long-term incentive pay as described below are used to further align management with shareholders:

 

  

Performance-based long-term incentive awards. We use performance-based restricted stock units (“PVRSUs”) that vest after three years and are determined based on absolute shareholder return and strategic goals including asset growth, controlling cost and certain ESG goals. PVRSUs represent 60% of the NEO equity awards.

 

  

Time-based long-term incentive awards. We use time-vested restricted stock units (“TVRSUs”) that vest pro-rata over a three-year period. TVRSUs represent 40% of the NEO equity awards.

 

  

Benefits. The retirement and health benefits that are available to our NEOs are described below under “—How Compensation Components Are Determined—Retirement Benefits.”

Board Process and Independent Review of Compensation Program

The compensation committee is responsible for determining the compensation of our directors and executive officers and for establishing, implementing and monitoring adherence to our executive compensation philosophy. The compensation committee provides oversight on behalf of the Board in reviewing and administering the compensation programs, benefits, incentive and equity-based compensation plans. The compensation committee operates independently of management and receives compensation advice and data from outside independent advisors.

 

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The compensation committee charter authorizes the committee to retain and terminate, as the committee deems necessary, independent advisors to provide advice and evaluation of the compensation of directors and executive officers, and other matters relating to compensation, benefits, incentive and equity-based compensation plans and corporate performance. The compensation committee is further authorized to approve the fees and other engagement terms of any independent advisor that it retains.

Our post-emergence compensation committee chose to engage Meridian Compensation Partners as its independent compensation consultant. In addition, with regard to the design of the management incentive program, which is reflected in our Long-Term Incentive Plan (“LTIP”), the compensation committee briefly engaged Lyons, Benenson & Company Inc. (individually, a “compensation consultant” or “advisor” and, collectively with Meridian, the “compensation consultants” or the “advisors”). The advisors did not provide any additional services to the Company or any of our affiliates during 2021. The compensation committee has reviewed the independence of each of the advisors as required by the NYSE rules, and determined that each is independent.

The compensation consultants report to, and act at the direction of, the compensation committee. The compensation consultants are independent of management, provide comparative market data regarding executive and director compensation to assist in establishing reference points for the principal components of compensation and provides information regarding compensation trends in the general marketplace, best practices, compensation practices of the Peer Groups described below, and regulatory and compliance developments. The ongoing compensation consultant regularly participates in the meetings of the compensation committee as well as meets regularly with the compensation committee in executive sessions without management present.

In determining compensation for our CEO, the compensation committee evaluates and assesses the CEO’s performance related to leadership, financial and operating results, achievement of company objectives and other considerations. The compensation consultant provides market information and perspectives on market-based adjustments, which are included in the compensation committee’s decision-making process. The compensation committee may incorporate these considerations, as well as compensation market information, into its adjustment decisions.

In determining compensation for executive officers other than our CEO, our CEO consults with the compensation consultant to review compensation market information and prior compensation decisions, and then recommends compensation adjustments to the compensation committee. Our CEO may attend compensation committee meetings at the request of the compensation committee, except when the compensation of our CEO is being discussed. The compensation committee reviews and approves all compensation for our NEOs and recommends the compensation for our directors to the full board.

Peer Groups and Benchmarking

We compete for talent with employers across many different sectors around the world, but our primary competitive market consists of offshore drilling companies and oilfield services companies. In making compensation decisions for our NEOs, each element of their total direct compensation is compared against published compensation data and data provided by the compensation consultant. Data from peer companies plays an important role in the process used by the compensation committee to determine the design, components and award levels in our executive pay program. The peer companies are chosen in part because they operate in a similar industry, form an appropriate range of revenue and asset sizes, and have similar breadth, complexity and global scope. The compensation committee conducts a review of our peer group every year in order to ensure that it remains appropriate.

 

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2021 Benchmark Peer Group

The following compensation benchmarking peer group was developed following our emergence from bankruptcy and used as a reference when establishing 2021 target compensation program design:

 

Bristow Group Inc. ChampionX Corporation Chart Industries, Inc.
Eagle Materials Inc. Helix Energy Solutions Group, Inc. Helmerich & Payne, Inc.
MRC Global Inc. Nabors Industries, Ltd. NOV Inc.
Oceaneering International, Inc. Patterson-UTI Energy, Inc. Tidewater Inc.
Transocean Ltd.  

How Compensation Components Are Determined

Base Salary

Base salary levels of the NEOs were determined based on a combination of factors, including our compensation philosophy, market compensation data, competition for key executive talent, the NEO’s experience, leadership, prior contribution to the Company’s success, the Company’s overall annual budget for merit increases and the NEO’s individual performance in the prior year. The compensation committee conducts an annual review of the base salaries of NEOs taking these factors into account and the committee also reviews the base salaries at the time of any promotion or significant change in job responsibilities.

2021 base salaries for our NEOs are shown in the table below:

 

Name

  2021 Base Salary 

Robert W. Eifler (1)

  $800,000 

Richard B. Barker

  $475,000 

William E. Turcotte

  $470,000 

Joey M. Kawaja

  $330,000 

Blake A. Denton

  $300,000 

 

(1)

The Board approved a base salary increase for Mr. Eifler effective February 16, 2021 from $675,000.

STIP

Our STIP gives participants, including NEOs, the opportunity to earn annual cash bonuses in relation to specified target award levels defined as a percentage of their base salaries. STIP target award levels are developed based on a combination of factors, including our compensation philosophy, market compensation data, competition for key executive talent, the NEO’s experience, leadership, prior contribution to the Company’s success, the Company’s overall annual budget for merit increases and the NEO’s individual performance. The success of the Company is tied to the achievement of key performance goals that are shown below and the STIP is designed to reward executives for meeting these goals. Company performance determines STIP funding levels. Accordingly, if performance thresholds are not met, STIP awards are not funded.

 

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The components of the performance bonus, weighting factors and threshold, target and maximum levels for corporate personnel, including NEOs, for the 2021 plan year (as revised by the Amended and Restated 2021 STIP) are set forth in the table below:

 

Component of
Performance Bonus

 

How Determined

 Weighting of
Component
 

2021 Target

 

Threshold/Target/Maximum

 

Bonus Pool
Multiple

Financial Efficiency Measure

 

 

 

Adjusted Free Cash Flow

 

 

 

35%

 

 

 

($154 million)

 

Threshold: ($182 million)

 

 

 

0.5

 Target: ($154 million) 1
 Maximum: ($88 million) 2
 Contract Drilling Margin less G&A relative to goal 

 

 

35%

 

 

 

10.50%

 

Threshold: 7.50%

 

 

 

0.5

 Target: 10.50% 1
 Maximum: 14.70% 2

Safety Performance Measure

     
TRIR relative to goal
     
10%
     
0.35 (measured pursuant to the guidelines set for by the International Association of Drilling Contractors “IADC”)
 

Threshold: ≤ 0.40

 

 

 

0.5

 Target: ≤ 0.35 1
 Maximum: ≤ 0.30 2
 Loss of Primary Containment (LOPC) 10% 0.43 

Threshold: ≤ 0.55

 0.5
 Target: ≤ 0.43 1
 Maximum: ≤ 0.30 2

Strategic

 Finalizing measurable ESG goals to be included in the Sustainability Report and publishing the report 10% Committee Discretion 

Threshold: 0.50

 

 

 

0.5

 Target: 1.00 1
 Maximum: 2.00 2

 

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STIP – Company Performance Component

The 2021 results and the calculation of the performance component for corporate personnel, including NEOs for the 2021 plan year (as revised by the Amended and Restated 2021 STIP), are set forth in the table below:

 

Component of

Performance Bonus

  Actual 2021 Results Bonus Pool Multiple  Component Payout
(Weighting X
Bonus Pool
Multiple)
 

Adjusted Free Cash Flow

  ($95 million) 1.89   0.66 

Contact Drilling Margin Less G&A

  10.85% 1.08   0.38 

TRIR Measure

  0.37 0.80   0.08 

Loss of Primary Containment (LOPC)

  0.20 2.00