Organization and Basis of Presentation

9 Months Ended

Sep. 30, 2020

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Organization and Basis of Presentation

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 September 30, 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 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 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.

Chapter 11 Proceedings, Liquidity and Going Concern

Voluntary Reorganization under Chapter 11 of the Bankruptcy Code

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 accepted contracts with dayrates and terms that were lower than anticipated when these capital projects and the associated debt were incurred. As a result, the Company has incurred significant losses since 2016 and significant impairment losses since 2014.

The challenging environment experienced through 2019 was further exacerbated in the beginning of 2020 by the novel strain of coronavirus (“COVID-19”) pandemic. The actions taken by governmental authorities around the world to mitigate the spread of COVID-19 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 have had, and we anticipate will continue to have, a significant negative effect on oil consumption. In the first half of 2020, production level disagreements developed among members of the Organization of Petroleum Exporting Countries and other oil and gas producing nations (“OPEC+”), ultimately culminating in increased production by Saudi Arabia and Russia. 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 and is 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.

As a result of the foregoing matters, we actively pursued a variety of transactions and cost-cutting measures during the first half of 2020, including but not limited to potential refinancing transactions by us or our subsidiaries, potential capital exchange transactions, and a potential waiver from lenders under, or amendment to, our 2017 Credit Facility (as defined herein).

Nevertheless, on July 31, 2020 (the “Petition Date”), Noble-UK and certain of its subsidiaries, including Noble-Cayman 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”). Further, on September 24, 2020, six additional subsidiaries of Noble-UK (together with Noble-UK 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 are being jointly administered under the caption Noble Corporation plc, et al. (Case No. 20-33826) (the “Chapter 11 Cases”). The Debtors are now operating their business as “debtors-in-possession” under the jurisdiction of the Bankruptcy Court pursuant to sections 1107 and 1108 of the Bankruptcy Code and orders of the Bankruptcy Court. To ensure the Debtors’ ability to continue operating in the ordinary course of business, on August 3, 2020, the Bankruptcy Court entered a variety of orders providing “first day” relief to the Debtors, including the authority for the Debtors to continue using their cash management system, pay employee wages and benefits and pay vendors and

suppliers in the ordinary course of business. As of the Petition Date, the Company began applying Accounting Standards Codification (“ASC”) Topic 852, Reorganizations (“ASC 852”).

The filing of the Chapter 11 Cases constituted events of default that accelerated the Company’s obligations under the indentures governing our outstanding senior notes and under our 2017 Credit Facility. As a result, we are no longer able to borrow any amounts under our 2017 Credit Facility. In addition, the unpaid principal and interest due under our outstanding senior notes and 2017 Credit Facility became immediately due and payable. As of September 30, 2020, the estimated claim amounts of our senior notes and the 2017 Credit Facility have been presented as “Liabilities subject to compromise” in our Condensed Consolidated Balance Sheet. However, any efforts to enforce such payment obligations with respect to our senior notes and 2017 Credit Facility are automatically stayed as a result of the filing of the Chapter 11 Cases, and the creditors’ rights of enforcement are subject to the applicable provisions of the Bankruptcy Code. We do not have sufficient cash on hand or available liquidity to repay such outstanding debt. As of September 30, 2020, we had an aggregate outstanding principal amount of approximately $3.4 billion in senior notes with stated maturities at various times from 2020 through 2045 and $545.0 million of borrowings outstanding under our 2017 Credit Facility. We elected not to make the semiannual interest payment due in respect of our Senior Notes due 2024 (the “2024 Notes”), which was due on July 15, 2020, and have not made any interest payments on our senior notes since such date.

On the Petition Date, the Debtors entered into a Restructuring Support Agreement (together with all exhibits and schedules thereto, and as amended by the First Amendment thereto dated as of August 20, 2020, the “Restructuring Support Agreement”) with an ad hoc group of certain holders of approximately 70% of the aggregate outstanding principal amount of our outstanding Senior Notes due 2026 (the “Guaranteed Notes”) and an ad hoc group of certain holders of approximately 45% of the aggregate outstanding principal amount of our other outstanding senior notes, taken as a whole (the “Legacy Notes”).

The Support Date (as defined in the Restructuring Support Agreement) occurred on August 20, 2020. Based upon the occurrence of the Support Date, the Consenting Creditors (as defined in the Restructuring Support Agreement) will support the Debtors' restructuring efforts as set forth in, and subject to the terms and conditions of, the Restructuring Support Agreement. The Debtors agreed to seek approval of a plan of reorganization and complete their restructuring efforts subject to the terms, conditions, and milestones contained in the Restructuring Support Agreement and otherwise comply with the terms and requirements set forth in the Restructuring Support Agreement. The Restructuring Support Agreement contains customary conditions, representations, and warranties of the parties and is subject to a number of conditions, including, among others, the accuracy of the representations and warranties of the parties and compliance with the obligations set forth in the Restructuring Support Agreement. The Restructuring Support Agreement also provides for termination by the parties upon the occurrence of certain events. See “Note 2— Chapter 11 Proceedings” for additional information.

As a result of the filing of the Chapter 11 Cases, our Board of Directors determined to cancel the Company’s share ownership policy applicable to the officers and directors, and the Company will consider an appropriate policy upon the Company’s emergence from bankruptcy.

Going Concern

Based on our evaluation of the circumstances described above, substantial doubt exists about our ability to continue as a going concern. 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. However, as a result of the Chapter 11 Cases, the realization of assets and the satisfaction of liabilities are subject to uncertainty. Our liquidity requirements, and the availability to us of adequate capital resources, are difficult to predict at this time. Notwithstanding the protections available to us under the Bankruptcy Code, if our future sources of liquidity are insufficient, we would face substantial liquidity constraints and would likely be required to significantly reduce, delay or eliminate capital expenditures, implement further cost reductions, seek other financing alternatives or cease operations as a going concern and liquidate. While operating as debtors-in-possession during the Chapter 11 Cases, we may sell or otherwise dispose of or liquidate assets or settle liabilities, subject to the approval of the Bankruptcy Court or as otherwise permitted in the ordinary course of business, for amounts other than those reflected in these condensed consolidated financial statements. Further, a chapter 11 plan will likely materially change the amounts and classifications of assets and liabilities reported in these condensed consolidated financial statements. The condensed consolidated financial statements do not reflect any adjustments that might be necessary should we be unable to continue as a going concern.