Organization and Basis of Presentation

3 Months Ended

Mar. 31, 2020

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Note 1— Organization and Basis of Presentation

Noble Corporation plc, a public limited company incorporated under the laws of England and Wales (“Noble-UK”), 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. As of March 31, 2020, our fleet of 24 drilling rigs consisted of 12 floaters and 12 jackups.

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.

Noble Corporation, a Cayman Islands company (“Noble-Cayman”), is an indirect, wholly-owned subsidiary of Noble-UK, our publicly-traded parent company. Noble-UK’s principal asset is all of the shares of Noble-Cayman. Noble-Cayman has no public equity outstanding. The condensed consolidated financial statements of Noble-UK include the accounts of Noble-Cayman, and Noble-UK conducts substantially all of its business through Noble-Cayman and its subsidiaries.

The accompanying unaudited condensed consolidated financial statements of Noble-UK and Noble-Cayman have been prepared pursuant to the rules and regulations of the US Securities and Exchange Commission (“SEC”) as they pertain to Quarterly Reports on Form 10-Q. Accordingly, certain information and disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) have been condensed or omitted pursuant to such rules and regulations. The unaudited financial statements are prepared on a going concern basis and reflect all adjustments that are, in the opinion of management, necessary for a fair statement of the financial position and results of operations for the interim periods, on a basis consistent with the annual audited consolidated financial statements. 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.

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