Revenue from Contracts with Customers

6 Months Ended

Jun. 30, 2024

Revenue from Contract with Customer [Abstract]

Revenue from Contracts with Customers

2. Revenue from Contracts with Customers

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 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.

Revenues Related to Managed Rigs

In 2021, we entered into an arrangement with an offshore drilling company whereby we agreed to 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 costs incurred. The fixed and variable fees were recognized in “Contract drilling” revenue in our unaudited Condensed 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 unaudited Condensed Consolidated Statements of Operations.

We may enter into certain drilling contracts directly with a customer. We are considered principal or agent under these transactions and recognize revenue under the terms of the contract. Such amounts are reported as “Contract drilling” revenue in our unaudited Condensed 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 unaudited Condensed Consolidated Statements of Operations.

The marketing arrangements for each of the managed rigs, the West Auriga and the West Vela, were terminated in 2023, and the management and charter agreements for the West Auriga were terminated in the first quarter of 2024. The West Auriga was returned to its owner at the end of February 2024. We also received notice of termination of the management agreement for the West Vela in April 2024, which became effective in July 2024. The termination of the management agreement had no effect on the bareboat charter agreement for the West Vela, which will continue in accordance with its terms until the completion of the rig’s existing drilling contract and any option periods.

Contract Balances

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

	June 30,			December 31,
	2024			2023
Trade receivables	$	197,169		$	253,367
Current contract assets (1)		3,638			2,575
Current contract liabilities (deferred revenue) (1)		(18,592	)		(12,634	)
Noncurrent contract liabilities (deferred revenue) (1)		(3,281	)		(3,947	)

(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 January 1, 2024	$	2,575		$	(16,581	)
Decrease due to amortization of revenue included in the beginning contract liability balance		—			5,596
Increase due to cash received, excluding amounts recognized as revenue during the period		—			(10,888	)
Increase due to revenue recognized during the period but contingent on future performance		1,464			—
Decrease due to transfer to receivables during the period		(323	)		—
Adjustments		(78	)		—
Balance as of June 30, 2024	$	3,638		$	(21,873	)

Transaction Price Allocated to Remaining Performance Obligations

The following table reflects revenue expected to be recognized in the future related to unsatisfied performance obligations as of June 30, 2024 (in thousands):

	For the Year Ending December 31,
	2024 (1)			2025			2026			2027			Total
Mobilization and contract preparation revenue	$	(2,707	)	$	(1,336	)	$	(1,336	)	$	(1,271	)	$	(6,650	)
Capital modification revenue		(2,324	)		—			—			—			(2,324	)
Blended rate/other revenue		(10,161	)		(2,738	)		—			—			(12,899	)
Total	$	(15,192	)	$	(4,074	)	$	(1,336	)	$	(1,271	)	$	(21,873	)

(1)Represents the six-month period beginning July 1, 2024.

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 the disclosure practical expedient in FASB ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606), and its related amendments and have excluded estimated variable consideration related to wholly unsatisfied performance obligations or to distinct future time increments within our contracts, including dayrate revenue.