Our contracts with customers provide for an offshore drilling rig and drilling services on a dayrate contract basis. The integrated services provided under our contracts primarily include (i) provision of an offshore drilling rig, the work crew and supplies of equipment and services necessary to operate the rig, (ii) mobilization and demobilization of the rig to and from the drill site and (iii) performance of rig preparation activities and/or modifications required for each contract.

We have concluded that our drilling contracts contain a lease component. However, we have elected to apply the practical expedient provided under ASU 2016-02 to not separate the lease and non-lease components and apply the revenue recognition guidance in Topic 606.

Therefore, we account for the integrated services provided within our drilling contracts as a single performance obligation satisfied over time, comprised of a series of distinct time increments in which we provide drilling services. The total transaction price is recognized for each drilling contract by estimating both fixed and variable consideration expected to be earned over the contract term (which is the period we estimate to be benefited from the corresponding activities and generally ranges from two to 60 months).

The amount estimated for variable consideration may be constrained (reduced) and is only recognized in revenue to the extent that it is probable that a significant reversal will not occur throughout the term of the contract. When determining if variable consideration should be constrained, management considers whether there are factors outside of our control that could result in a significant reversal of revenue, as well as the likelihood and magnitude of a potential reversal of revenue. These estimates are reassessed each reporting period as required. See below for further discussion regarding the allocation of the transaction price to the remaining performance obligations.

Dayrate Drilling Revenue. Our drilling contracts generally provide for payment on a dayrate basis, with higher rates for periods when the drilling unit is operating and lower rates or zero rates for periods when drilling operations are interrupted, restricted by equipment breakdowns, adverse environmental conditions, etc. The dayrate invoices billed to the customer are typically determined based on the varying rates applicable to the specific activities performed on an hourly basis. Such dayrate consideration is allocated to the distinct hourly increment it relates to within the contract term, and therefore recognized in line with the contractual rate billed for the services provided for any given hour.

Certain of our contracts contain performance based incentives, whereby we may earn a bonus or incur penalties based on pre-established performance metrics. Consideration related to the performance incentive is generally recognized in the specific time period to which the performance criteria were attributed.

Mobilization/Demobilization Revenue. We may receive fees (on either a fixed lump-sum or variable dayrate basis) for the mobilization and demobilization of our rigs. These activities are not considered to be distinct within the context of the contract, and therefore the associated revenue is allocated to the overall performance obligation. We record a contract liability for mobilization fees received and amortize such on a straight-line basis to contract drilling revenue as services are rendered over the term of the related drilling contract. Demobilization revenue expected to be received upon contract completion is estimated as part of the overall transaction price at contract inception and recognized as contract drilling revenue on a straight-line basis over the term of the contract with an offset to an accretive contract asset.

In some contracts, there is uncertainty as to the likelihood and amount of expected demobilization revenue to be received. For example, contractual provisions may require that a rig demobilize a certain distance before the demobilization revenue is payable or the amount may vary dependent upon whether or not the rig has additional contracted work within a certain distance from the wellsite. Therefore, the estimate for such revenue may be constrained, as described above, depending on the facts and circumstances pertaining to the specific contract. We assess the likelihood of receiving such revenue based on our past experience and knowledge of market conditions.

Contract Preparation Revenue. Some of our drilling contracts require downtime before the start of the contract to prepare the rig to meet customer requirements. At times, the customer may compensate us for such work (on either a fixed lump-sum or variable dayrate basis). These activities are not considered to be distinct within the context of the contract. We record a contract liability for contract preparation upfront fees received, which is amortized on a straight-line basis to contract drilling revenue over the term of the related drilling contract.

Capital Modification Revenue. From time to time, we may receive fees from our customers for capital improvements or upgrades to our rigs to meet contractual requirements (on either a fixed lump-sum or variable dayrate basis). The activities related to these capital modifications are not considered to be distinct within the context of our contracts. We record a contract liability for the upfront fees received and recognize them on a straight-line basis to contract drilling revenue over the term of the related drilling contract.

Termination Fees. Certain of our drilling contracts may be cancelable for the convenience of the customer, typically with the payment of an early termination fee. Termination fees are not considered distinct within the context of the contract and are typically recognized ratably over the remaining term of the contract once notice of termination is received, and such fee can be reasonably estimated and collection is probable.

During the Successor year ended December 31, 2023, we recognized fees of $12.5 million and $6.7 million related to the termination of contracts for the Ocean Patriot and Ocean Apex, respectively.

Revenues Related to Reimbursable Expenses. We generally receive reimbursements from our customers for the purchase of supplies, equipment, personnel services and other services provided at their request. Such reimbursable revenue is variable and subject to uncertainty, as the amounts received and timing thereof are highly dependent on factors outside of our influence. Accordingly, reimbursable revenue is fully constrained and not recognized until the uncertainty is resolved, which typically occurs when the related costs are incurred on behalf of a customer. We are generally considered a principal in such transactions and record the associated revenue at the gross amount billed to the customer, as “Revenues related to reimbursable expenses” in our Consolidated Statements of Operations.

Revenues Related to Managed Rigs. In May 2021, we entered into an arrangement with an offshore drilling company whereby we would provide management and marketing services (or the MMSA) for certain of their rigs. The MMSA provided for (i) a daily fixed fee, based on status of the drilling rig, (ii) marketing fees based on a percentage of the earned dayrate of a drilling contract secured by us on behalf of the rig owner, (iii) a variable management fee and (iv) reimbursement of direct cost incurred. The fixed and variable fees were recognized in “Contract Drilling Revenue” in our Consolidated Statements of Operations. Revenue related to the reimbursement of expenses incurred and billed to the rig owner were recorded as “Revenues related to reimbursable expenses” in our Consolidated Statements of Operations.

We may enter into certain drilling contracts directly with a customer. We are considered principal or agent of these transactions and recognize revenue under the terms of the contract. Such amounts are reported as "Contract Drilling Revenue" in our Consolidated Statements of Operations. In addition, we charter the related drilling rig from the rig owner to satisfy our performance obligation under the contract. We have determined that the arrangement to charter the rig is an operating lease, and the related charter fee has been reported as lease expense within "Contract Drilling, excluding depreciation" in our Consolidated Statements of Operations.

The marketing arrangement for both rigs was terminated in 2023, and the charter agreement for the West Auriga was terminated in 2024. The West Auriga is expected to be returned to the rig owner upon completion of its drilling contract during the first quarter of 2024.

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. Contract asset balances consist primarily of demobilization revenue that we expect to receive and is recognized ratably throughout the contract term, but invoiced upon completion of the demobilization activities. Once the demobilization revenue is invoiced, the corresponding contract asset is transferred to accounts receivable. Contract assets may also include amounts

recognized in advance of amounts invoiced due to the blending of rates when a contract has operating dayrates that increase over the initial contract term. Contract liabilities include payments received for mobilization as well as rig preparation and upgrade activities which are allocated to the overall performance obligation and recognized ratably over the initial term of the contract. Contract liabilities may also include amounts invoiced in advance of amounts recognized due to the blending of rates when a contract has operating dayrates that decrease over the initial contract term.

Contract balances are netted at a contract level, such that deferred revenue for mobilization, contract preparation and capital modifications (contract liabilities) is netted with any accrued demobilization revenue (contract asset) for each applicable contract.

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


	December 31,
	2023			2022
Trade receivables	$	253,367		$	155,956
Current contract assets (1)		2,575			141
Noncurrent contract assets (1)		—			—
Current contract liabilities (deferred revenue) (1)		(12,634	)		(11,513	)
Noncurrent contract liabilities (deferred revenue) (1)		(3,947	)		(487	)

(1)

Contract assets and contract liabilities may reflect balances that 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 asset and liability balances are included in “Other assets” and “Other liabilities,” respectively, in our Consolidated Balance Sheets as of December 31, 2023 and 2022.

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


	Contract			Contract
	Assets			Liabilities
Balance as of January 1, 2022	$	1,835		$	(48,293	)
Decrease due to amortization of revenue included in the beginning contract liability balance		—			26,909
Increase due to cash received, excluding amounts recognized as revenue during the period		—			(2,444	)
Increase due to revenue recognized during the period but contingent on future performance		6,618			—
Decrease due to transfer to receivables during the period		(8,312	)		—
Adjustments (1)		—			11,828
Balance as of December 31, 2022	$	141		$	(12,000	)
Decrease due to amortization of revenue included in the beginning contract liability balance		—			11,512
Increase due to cash received, excluding amounts recognized as revenue during the period		—			(16,093	)
Increase due to revenue recognized during the period but contingent on future performance		12,177			—
Decrease due to transfer to receivables during the period		(9,743	)		—
Balance as of December 31, 2023	$	2,575		$	(16,581	)

(1) Upon commencement of drilling operations, the MMSA for the managed rigs was suspended and replaced by a charter agreement for the duration of the contract. As a result, we reclassified $11.1 million previously recorded

as a contract liability to “Contract advances,” which was reported as a component of “Accrued liabilities” in our Consolidated Balance Sheets at December 31, 2022.

Certain direct and incremental costs incurred for upfront preparation, initial mobilization and modifications of contracted rigs represent costs of fulfilling a contract as they relate directly to a contract, enhance resources that will be used in satisfying our performance obligations in the future and are expected to be recovered. Such costs are deferred and amortized ratably to contract drilling expense as services are rendered over the term of the related drilling contract. Such deferred contract costs in the amount of $20.6 million and $6.2 million are reported in “Prepaid expenses and other current assets” and “Other assets,” respectively, in our Consolidated Balance Sheets at December 31, 2023. Deferred contract costs in the amount of $14.4 million and $0.3 million are reported in “Prepaid expenses and other current assets” and “Other assets,” respectively, in our Consolidated Balance Sheets at December 31, 2022. The amount of amortization of such costs was $16.2 million and $7.3 million for the years ended December 31, 2023 and 2022, respectively. There was no impairment loss in relation to capitalized costs.

Costs incurred for the demobilization of rigs at contract completion are recognized as incurred during the demobilization process. Costs incurred for rig modifications or upgrades required for a contract, which are considered to be capital improvements, are capitalized as drilling and other property and equipment and depreciated over the estimated useful life of the improvement.

The following table reflects revenue expected to be recognized in the future related to unsatisfied performance obligations as of December 31, 2023 (in thousands):


	For the Year Ending December 31,
	2024		2025		2026		2027		Total
Mobilization and contract preparation revenue	$	6,256	$	1,350	$	1,350	$	1,235	$	10,191
Capital modification revenue		4,381		—		—		—		4,381
Blended rate/other revenue		2,009		—		—		—		2,009
Demobilization and other deferred revenue		472		198		198		181		1,049
Total	$	13,118	$	1,548	$	1,548	$	1,416	$	17,630