Organization and Basis of Presentation (Policies)

3 Months Ended

Mar. 31, 2020

Organization, Consolidation and Presentation of Financial Statements [Abstract]

. All such adjustments are of a recurring nature. The December 31, 2019 Condensed Consolidated Balance Sheets presented herein are derived from the December 31, 2019 audited consolidated financial statements. These interim financial statements should be read in conjunction with the consolidated financial statements and notes included in our Annual Report on Form 10-K for the year ended December 31, 2019, filed by both Noble-UK and Noble-Cayman. The results of operations for interim periods are not necessarily indicative of the results to be expected for the full year.

Accounting Pronouncements

Accounting Standards Adopted

In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-13 (Topic 326, “Measurement of Credit Losses on Financial Instruments”), which requires changes to the recognition of credit losses on financial instruments not accounted for at fair value through net income, including loans, debt securities, trade receivables, net investments in leases and available-for-sale debt securities. This guidance is effective for annual and interim periods beginning after December 15, 2019. Entities are required to apply the standard’s provisions as a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is adopted. We adopted this standard effective January 1, 2020 and will not restate comparative periods. Our adoption did not have a material effect on our condensed consolidated financial statements. The Company will continue to actively monitor the impact of the COVID-19 pandemic on expected credit losses.

Issued Accounting Standards

In December 2019, the FASB issued ASU No. 2019-12, which amends Accounting Standards Codification (“ASC”) Subtopic 740, “Income Taxes.” This update simplifies the accounting for income taxes by removing certain exceptions to general principles. The amendment is effective for fiscal years beginning after December 15, 2020 and is required to be adopted on a retrospective basis for all periods presented. We are evaluating what impact, if any, the adoption of this guidance will have on our condensed consolidated financial statements.

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

Contract Balances

Accounts receivable are recognized when the right to consideration becomes unconditional based upon contractual billing schedules. Payment terms on invoiced amounts are typically 30 days. Current contract asset and liability balances are included in “Prepaid expenses and other current assets” and “Other current liabilities,” respectively, and noncurrent contract assets and liabilities are included in “Other assets” and “Other liabilities,” respectively, on our Condensed Consolidated Balance Sheets.

Liquidity Concerns and Actions to Address Liquidity Needs; Going Concern

The offshore drilling industry experienced a significant expansion from the early 2000s to the mid-2010s, during which time the Company constructed or rebuilt each rig in our current fleet and incurred a substantial amount of debt in connection therewith. Since that time, the industry has experienced a significant sustained reduction in oil prices and a substantial increase in offshore rig supply, which have led to an industry-wide supply and demand imbalance and an extremely challenging environment. During such period of supply and demand imbalance, we had to accept contracts with dayrates and terms that were lower than anticipated when these capital projects and the associated debt were incurred. The Company has incurred significant losses since 2016 and significant impairment losses since 2014. The challenging environment experienced through 2019 has been further exacerbated by the novel strain of coronavirus (“COVID-19”) pandemic and production level disagreements that developed among members of the Organization of Petroleum Exporting Countries and other oil and gas producing nations (“OPEC+”) in the beginning of 2020.

We have experienced unprecedented challenges in the first few months of 2020. The development of COVID-19 into a pandemic, the actions taken to mitigate the spread of COVID-19 by governmental authorities around the world and the risk of infection have altered, and are expected to continue to alter, policies of governments and companies and behaviors of customers around the world in ways that we anticipate will have a significant negative effect on oil consumption, such as government-imposed or voluntary social distancing and quarantining, reduced travel, and remote work policies. At the start of the COVID-19 pandemic and related mitigation efforts, disagreements developed within OPEC+, and Saudi Arabia and Russia initiated efforts to aggressively increase oil production, thereby increasing inventory levels even further. The convergence of these events resulted in an unprecedented steep decline in the demand for oil and a substantial surplus in the supply of oil. Although OPEC+ agreed in April 2020 to reduce production, the continued decreased demand for crude oil and historically low oil prices are expected to continue for the foreseeable future. Such challenging conditions had, and are expected to continue to have, a severe impact on our business, operations and financial condition in various respects, including substantially reducing demand for our services. These unprecedented recent events have impacted our current and expected liquidity position in several meaningful ways since December 31, 2019 as set forth below.


•	Higher than previously anticipated free cash flow deficits over the next twelve months.


•	Reduced availability under our 2017 Credit Facility (as defined herein), primarily driven by:


◦	The impact of the $1.1 billion in impairment losses incurred in the three months ended March 31, 2020 on the borrowing availability as calculated under the Indenture Secured Debt Basket (as defined in the First Amendment to the 2017 Credit Facility). See “Note 9— Loss on Impairment” for additional information.


◦	The impact of the expected reduction in Adjusted EBITDA (as defined herein) over the next twelve months on the borrowing availability as calculated under the Leverage Covenant (as defined herein).


•	Increased borrowings under the 2017 Credit Facility, primarily due to the early repayment of the Seller Loans (as defined herein) in April 2020. As a result of such early repayment, we avoided a default under the Seller Loans, as the impairment losses referred to above caused us to exceed the maximum debt to total capitalization ratio set forth in the Seller Loans at March 31, 2020.


•	Significantly reduced access to sources of new capital.

The impairment losses incurred since the First Amendment to the 2017 Credit Facility have led to a meaningful reduction in Consolidated Net Tangible Assets (“CNTA”) and consequently constrained our ability to access the full commitments under our 2017 Credit Facility. Commitments under our 2017 Credit Facility total $1.3 billion; however, the maximum availability is also currently limited by the Indenture Secured Debt Basket at approximately $1.05 billion. In addition, a certain amount of commitments is required to remain unused to satisfy the Minimum Liquidity Covenant (as defined herein). At April 23, 2020 and after using borrowings under our 2017 Credit Facility to repay the Seller Loans, we had $545.0 million of borrowings outstanding and could borrow up to an additional $297.8 million under our 2017 Credit Facility. Due to the current economic uncertainty and resulting impact on drilling activity, we anticipate even greater than previously expected continued losses and negative cash flow over the next twelve months. Unless we are able to access alternative financing in the current market or obtain a waiver from lenders of certain covenants under, or amendment to, our 2017 Credit Facility, we are forecasted to use all of the availability under our 2017 Credit Facility and breach the Minimum Liquidity Covenant by the end of 2020. See “Note 6— Debt”, for additional information.

Based on our evaluation of the circumstances described above, substantial doubt exists about our ability to continue as a going concern.

We are actively pursuing a variety of transactions and cost-cutting measures, including, but not limited to, reductions in corporate discretionary expenditures, potential refinancing transactions by us or our subsidiaries, potential capital exchange transactions, a potential waiver from lenders under, or amendment to, our 2017 Credit Facility, further reductions in capital expenditures and increased focus on operational efficiencies. However, the prospects of successfully obtaining sufficient liquidity, to meet near-term debt obligations through these efforts are highly challenging, particularly in the current environment. Consequently, we cannot predict the extent to which any of these measures will be successful, if at all. If we are not successful in achieving these results outside of a court process, there is substantial risk that it may be necessary for us to seek protection from our creditors under Chapter 11 of the US Bankruptcy Code.

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