Revenue from Contracts with Customers

9 Months Ended

Sep. 30, 2023

Revenue from Contract with Customer [Abstract]

Revenue from Contracts with Customers

2. Revenue from Contracts with Customers

The activities that primarily drive the revenue earned from our contract drilling services include (i) providing a drilling rig and the crew and supplies necessary to operate the rig, (ii) mobilizing and demobilizing the rig to and from the drill site and (iii) performing rig preparation activities and/or modifications required for the contract. Consideration received for performing these activities may consist of dayrate drilling revenue, mobilization and demobilization revenue, contract preparation revenue and reimbursement revenue. We account for these integrated services provided within our drilling contracts as a single performance obligation satisfied over time and comprised of a series of distinct time increments in which we provide drilling services.

Consideration for activities that are not distinct within the context of our contracts and do not correspond to a distinct time increment within the contract term are allocated across the single performance obligation and recognized ratably over the initial term of the contract (which is the period we estimate to be benefited from the corresponding activities and generally ranges from two to 60 months). Such consideration may include mobilization, demobilization, contract preparation and capital modification revenue that is stipulated in our drilling contracts. Consideration for activities that correspond to a distinct time increment within the contract term is recognized in the period when the services are performed. The total transaction price is determined for each individual contract by estimating both fixed and variable consideration expected to be earned over the term of the contract.

Revenues Related to Managed Rigs

We are participants in an arrangement with an offshore drilling company whereby we provide management and marketing services (or the MSA) for certain of its rigs. Per the MSA, for stacked rigs we earn a daily service fee and are entitled to reimbursement of direct costs incurred in accordance with the agreement. The daily service fee revenue is recognized in line with the contractual rate billed for the services provided and is reported in “Contract drilling revenue” in our unaudited Condensed Consolidated Statements of Operations. We record the revenue relating to reimbursed expenses at the gross amount incurred and billed to the rig owner, as “Revenues related to reimbursable expenses” in our unaudited Condensed Consolidated Statements of Operations. In April 2023, we received notice of termination of the marketing arrangement for the managed rigs, which will be effective in the third quarter of 2023. However, termination of the marketing arrangement does not impact the management services that we provide under the MSA.

The managed rigs West Auriga and West Vela commenced operations in the U.S. Gulf of Mexico (or GOM) in 2022. Both rigs are currently under contract; however, we expect each rig to complete their respective contracts in 2024.

Upon commencement of drilling operations, the MSA for both rigs was suspended and replaced by a charter agreement for the duration of the drilling contracts. We entered into the drilling contract directly with the customer and recognize revenue under the terms of the contract. We report such revenue as “Contract drilling revenue” in our unaudited Condensed Consolidated Statements of Operations. In addition, we have determined that the charter arrangement is an operating lease, and the related charter fee has been reported as lease expense within "Contract drilling, excluding depreciation" in our unaudited Condensed Consolidated Statements of Operations.

Contract Balances

The following table provides information about receivables, contract assets and contract liabilities related to our contracts with customers (in thousands):

	September 30,			December 31,
	2023			2022
Trade receivables	$	170,596		$	155,956
Current contract assets (1)		4,324			141
Current contract liabilities (deferred revenue) (1)		(4,888	)		(11,513	)
Noncurrent contract liabilities (deferred revenue) (1)		—			(487	)

(1)Contract assets and contract liabilities may reflect balances which have been netted together on a contract basis. Net current contract asset and liability balances are included in “Prepaid expenses and other current assets” and “Accrued liabilities,” respectively, and net noncurrent contract liability balances are included in “Other liabilities” in our unaudited Condensed Consolidated Balance Sheets.

Changes in the contract assets and the contract liabilities balances during the period are as follows (in thousands):

	Contract			Contract
	Assets			Liabilities
Balance as of December 31, 2022	$	141		$	(12,000	)
Decrease due to amortization of revenue included in the beginning contract liability balance		—			9,266
Increase due to cash received, excluding amounts recognized as revenue during the period		—			(2,154	)
Increase due to revenue recognized during the period but contingent on future performance		6,551			—
Decrease due to transfer to receivables during the period		(2,368	)		—
Balance as of September 30, 2023	$	4,324		$	(4,888	)

Transaction Price Allocated to Remaining Performance Obligations

The following table reflects the specified types of revenue expected to be recognized in the future related to unsatisfied performance obligations as of September 30, 2023 (in thousands):

	For the Years Ending December 31,
	2023 (1)			2024			Total
Mobilization and contract preparation revenue	$	(633	)	$	(933	)	$	(1,566	)
Capital modification revenue		(1,673	)		(1,649	)		(3,322	)
Total	$	(2,306	)	$	(2,582	)	$	(4,888	)

(1)Represents the three-month period beginning October 1, 2023.

The revenue included above consists of expected fixed mobilization and upgrade revenue for both wholly and partially unsatisfied performance obligations, as well as expected variable mobilization and upgrade revenue for partially unsatisfied performance obligations, which has been estimated for purposes of allocating across the entire corresponding performance obligations. The actual timing of recognition of such amounts may vary due to factors outside of our control. We have applied certain disclosure practical expedients and, accordingly, have excluded estimated variable consideration related to wholly unsatisfied performance obligations or to distinct future time increments within our contracts, including dayrate revenue.