Derivative Instruments

12 Months Ended

Dec. 31, 2022

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivative Instruments

Note 17— Derivative Instruments

Although we are a UK company, we define foreign currency as any non-US dollar denominated currency. Our functional currency is the US Dollar. We are exposed to risks on future cash flows to the extent that expenses denominated in a foreign currency are not equal to revenues denominated in the same foreign currency. The Company uses foreign currency forward contracts in order to manage our net exposure to fluctuations in currency exchange rates. Currencies of the Company’s derivative instruments include DKK, the Australian dollar (“AUD”), the British pound sterling (“GBP”), and the Norwegian krone (“NOK”). Currency derivatives are mainly realized within one year. We did not enter into any derivative contracts in 2021.

We have exposure related to changes in interest rates on borrowings under the Revolving Credit Facility and the New DNB Credit Facility and may be subject to similar exposure on future borrowing arrangements. We were subject to changes in interest rates on borrowings under the DSF Facility prior to its repayment. The Company may use interest rate swap contracts in order to manage our exposure to fluctuations in interest rates. During the year ended December 31, 2022, we acquired interest rate swaps in the Business Combination with Maersk Drilling; none were outstanding as of December 31, 2022.

Derivative financial instruments are recognized on the trading date and measured at fair value using generally accepted valuation techniques based on relevant observable inputs. The Company does not enter into derivative transactions for speculative purposes and for accounting purposes we have not elected to apply hedge accounting for these transactions. Realized gains and losses as well as changes in the fair values of derivative financial instruments are recognized in the income statement in “Interest income and other, net.”

The following table summarizes notional value of currency derivative contracts as of December 31, 2022:

	December 31, 2022
	Foreign Currency	USD Equivalent
DKK to USD	484,593	68,840
AUD to USD	51,139	35,257
GBP to USD	9,083	10,922

The following gains/(losses) from derivative instruments were recognized on our Consolidated Statements of Operations:

Derivative Instrument	Description	December 31, 2022
Interest rate swap contracts	Realized (gain) loss	$	(949)
Foreign currency forward contracts	Realized (gain) loss	(6,169)
Foreign currency forward contracts	Unrealized (gain) loss	(1,229)